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by Free Market Duck

Obama/Congress Implement Marriage Tax Penalties in "Fiscal Cliff" Taxes

(Jan 02, 2013)

President Obama promised to sign legislation to allow gay marriage; then he signed a new tax law that penalizes married couples. 

Washington, DC -- The US Congress just passed a new law that increases the taxes of all Americans in many areas of the tax code.  The new bill does nothing to cut spending.  And the new bill does not address our out-of-control deficit, now at $17 trillion.  Nor does it address our looming debt ceiling.

But let's take a gander at a couple of the unintended tax consequences that Congress and President Obama just foisted upon all married couples.  That consequence is what's known as "The Marriage Penalty Tax."

Remember in the old days when inflation was only trotting along instead of galloping like it is today, and your IRS 1040 Tax Return listed exemptions or deductions for single and married couples?  The deduction for a married couple was not double the deduction for a single person.  In other words, it was more advantageous, tax-wise, for married couples to get a divorce and just live together as man and wife in order to double their tax deductions and exemptions.

This same anomaly -- called a Marriage Penalty Tax -- was stupidly passed in at least three sections of yesterday's House and Senate-approved "Fiscal Cliff" tax bill and President Obama will now sign off on this encouragement-to-get-a-divorce tax.

What are the new tax snafus that will penalize married couples?

Snafu # 1:  Income tax rates have now been increased from 35% to 39.6% for individuals earning over $400K, $450K for a married couple.  That means your spouse is only worth $50K for tax sheltering purposes.  Hey, get a divorce, live together and your total tax deduction will be $800K.  Ironically, Congress' new "Fiscal Cliff" tax law encourages divorce.  If you are a small business filing as a sole proprietor, it may be very important to you to shelter $800,000 as two individuals vs. only being able to shelter $450,000 as a married couple.  It may make or break your business.  It certainly could encourage the break-up of your marriage.

Snafu # 2:  Personal income tax exemptions -- different from increased tax rates in Snafu # 1 above -- are phased out for incomes over $250K, $300K for married couples.  Again, your spouse is discriminated against by this new tax law and he or she is only worth $50,000 instead of $250,000 for an individual.  Once again, you are encouraged by the new "Fiscal Cliff" tax law to divorce your spouse, stay living together, and go for the $500,000 for two individual tax exemption vs. the $300,000 tax exemption for married couples.

Snafu # 3:  Capital gains taxes are increasing from 15% to 20% for earners over $400K, $450K for married couples.  For a third time in this "Fiscal Cliff" tax bill, your wife or husband (spouse if you're gay), is only worth $50K instead of $400K.  That's another slap in the face of individual rights under the tax law.  For the third time, get a divorce and you can avoid the higher capital gains tax by raising your sheltered earnings from $450,000 for a married couple to $800,000 for an unmarried "couple."

Just think, depending on your professions and savings, you and your spouse could fall into all three Snafu categories above.  Get a divorce and you both could be better off to the tune of $350K + $200K + $350K = $900,000 in tax sheltering.  Hey, take some of that sheltered tax money and go on a Big Tax Divorce Vacation to the Bahamas and live it up!  Invite your friends.

Note that gays who were thrilled that President Obama vowed to sign an Executive Order or legislation to allow gay marriages have just been screwed at least three times by the unintended consequences of Obama's new Fiscal Cliff tax law.  Gays who have been demonstrating in the streets for Gay Marriage may want to re-think what they wished for.

Gay or Straight, you may well want to re-think your entire business and investment strategies in light of Obama's and Congress' new Fiscal Cliff Tax Law and its three Marriage Penalty Snafus worth almost a million bucks.  "Yes, until death or taxes do we part, my dear... at least on our tax returns..." – FM Duck

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