Utah lawmakers are exploring ways to improve the state’s tax system to remove marriage penalties inadvertently built into the tax code. Their focus on pro-marriage public policies is warranted, but equally important is accomplishing these reforms without penalizing other groups. Legislators should proceed thoughtfully to craft a balanced approach.
H.B. 210 Tax Penalties Amendments, sponsored by Rep. Melissa Ballard, seeks to remove so-called “marriage penalties” in Utah’s tax code.
While Utah’s flat income tax avoids many of the marriage penalties that might otherwise exist, a Kem C. Gardner Policy Institute report found that “targeted tax carveouts for certain groups, particularly within Utah’s income tax, can create marriage penalties.” In other words, some of Utah’s existing income tax credits may inadvertently penalize or discourage couples who want to marry.
And while it’s important to note that H.B. 210 only deals with the tax code, not social welfare programs that can also discourage marriage, the broad objective of this legislation is laudable and worth pursuing: that public policy – and the tax code specifically – should never discourage or penalize marriage.
Marriage is strongly associated with positive economic and social outcomes for adults and children, from higher earning potential and financial security to better mental and physical health. These well-documented benefits make pro-marriage family policy a worthy goal for policymakers.
H.B. 210 standardizes the thresholds at which marriage-penalty-prone tax credits phase out, and removes marriage penalties in these credits for married filers moving forward.
A simpler, more pro-marriage tax code is a good policy objective for Utah families. But how the bill arrives at that laudable outcome needs refinement.
H.B. 210 lowers the income phaseout threshold for individual filers in four tax credits: the taxpayer tax credit, the retirement tax credit, the social security benefits tax credit, and the child tax credit, to make them half of the threshold for married joint filers.
This change eliminates marriage penalties by aligning thresholds, but it does so by reducing eligibility for individual filers.
For example, imagine a single mother who files her taxes as Head of Household and currently receives Utah’s Child Tax Credit. Under current law, she can earn up to $43,000 before her credit starts phasing out. H.B. 210 would lower that threshold to $27,000, increasing her taxes due to reducing or eliminating the credit.
This effectively reduces the number of families who are eligible for that credit, meaning some would owe more in taxes despite no change in their underlying income.
Lawmakers should consider amendments to H.B. 210 that preserve the goal of eliminating marriage penalties, without raising taxes on Utah families that are often headed by a single parent and earning low to moderate income.
They could raise the married filer threshold, which would accomplish the same policy objective but admittedly may cost more taxpayer dollars. They could also amend the bill’s proposed Marriage Tax Credit – which envisions a $158 “marriage bonus” for couples who marry and file taxes jointly – and retarget it to help offset the bill’s tax increase on unmarried households.
Lastly, lawmakers should consider how some iteration of a separate proposed expansion of the Child Tax Credit, Rep. Tracy Miller’s H.B. 290 Child Tax Credit Amendments, can be leveraged to hold harmless the families seeing a tax increase in H.B. 210.
The broad policy goals of this legislation are sound and worthy of thoughtful consideration. If lawmakers can accomplish those goals while protecting single-parent families from an unnecessary tax increase, they will have advanced family policy in a meaningful way in Utah and offer a roadmap to state and federal partners across the nation.
Nic Dunn is vice president of strategy and senior fellow, and host of Defending Ideas, for Sutherland Institute.
