Public Law & Legal Theory
For decades, the well-known “marriage tax trilemma” has played a central role in discussions of the tax treatment of the family unit. The “trilemma” refers to the mathematical impossibility of constructing a tax system that imposes the same tax liability across all married couples with the same income (couples neutrality), neither encourages nor penalizes marriage (marriage neutrality), and taxes higher income individuals at higher rates (progressivity). Numerous articles have proposed responses to the trilemma that choose two of the legs over a third or that seek to split the difference among the competing neutrality norms that the trilemma casts as desirable. Most casebooks, meanwhile, use the trilemma to introduce students to the policy debate over the taxation of marriage and the household.
The overwhelming emphasis on the trilemma is surprising once one recognizes that there is in fact no trilemma at all: we need not choose among couples neutrality, marriage neutrality, and progressivity because we can have all three. The solution—which several scholars have noted, but the tax policy debate has largely ignored—lies in a flat tax rate combined with a refundable per-person tax credit (or “demogrant”), which could be constructed so as to yield a highly progressive average rate structure while maintaining couples neutrality and marriage neutrality. Whatever the merits of the flat tax plus demogrant as a policy matter, it plays a useful role as a thought experiment: If we achieved progressivity through a flat tax and a demogrant, such that we could have couples neutrality and marriage neutrality simultaneously, would we want to deviate from these neutrality norms anyway? If so—if we would want to violate the couples neutrality and marriage neutrality norms even if they were compatible with a progressive tax structure—then the trilemma is not the central challenge in the taxation of singles and couples.
This Essay examines the arguments for couples neutrality and marriage neutrality, concluding that neither norm is an appropriate objective for tax policy. Couples neutrality sacrifices the potential efficiency gains from taxing secondary earners at reduced rates. Marriage neutrality relinquishes the distributive benefits of targeted transfers to single parents. To be sure, deviations from couples neutrality may lead to inefficient reallocations of labor within the household, and a single parent bonus necessarily entails a marriage penalty. These tradeoffs—unlike the soluble marriage tax trilemma—are the deep quandaries in the taxation of marriage that scholars and policymakers must confront.
The Essay concludes with implications for research, policy, and pedagogy. The analysis underscores the importance of studying the welfare effects of “marginal marriages”—the unions that modest tax penalties might deter—rather than basing policy analysis on data drawn from marriages that are distant from the margin. It also casts a somewhat more favorable light on the marriage penalties embedded in the earned income tax credit and the head of household filing status under the current tax code. Finally, it suggests that teachers of tax law should reorient class materials and discussions away from a trilemma that we know how to (but should not want to) solve and toward the genuine dilemmas in the tax treatment of marriage.
Daniel J. Hemel, "Beyond the Marriage Tax Trilemma", Public Law and Legal Theory Working Paper Series, No. 726 (2019).