El período postfiloxérico

Tax law has a complicated relationship with the family. At the federal level, the story has been a complex one since the adoption of the Sixteenth Amendment on March 1, 1913.²⁷ At that time, only individuals could file tax returns. The notion of a single

“marital tax entity”²⁸ developed over the time. It first appeared in 1921, and then became an “orthodoxy”²⁹ in 1948, when Congress introduced an income-splitting scheme in common law states. The scheme was intended to remedy unequal

26 See 26 U.S.C.S § 152 (d)(2)(H) (Lexis Nexis, approved Oct. 3, 2018).

27 Boris Bittker, Federal Income Taxation and the Family, 27 STAN. L. REV. 1389, 1399 (1975).

28 Patricia Cain, Taxing Families Fairly, 48 SANTA CLARA L.REV. 805, 822 (2008).

29 Lily Kahng, Innocent Spouses: A Critique of the New Tax Laws Governing Joint and Several Tax Liability, 49 VILL.L.REV. 261 (2004).

treatment between spouses residing in community property states and those living in states that did not allow it.³⁰

The first step in the fiscal jungle is to select a “filing status,” on the basis of self-assessment.³¹ Although there are four statuses available, each with a corresponding rate schedule, taxpayers’ options are limited by their marital status. For single people, the options are “Single” or “Head of Household.”³² Married people can choose between “Married Filing Separately” or “Married Filing Jointly.”³³ Under Section 7703 (“Determination of marital status”), married means… married. A couple is considered married until a decree of divorce or of separate maintenance.

Also, legally married people living apart are permitted to file as Heads of the Household if some conditions are met.³⁴ Hence, the options for married people are actually three.

The filing status affects the tax rates ultimately applied to the taxable income, the deductions that can be taken, and the credits which can be subtracted from the final tax liability, such as the Earned Income Tax Credit (EITC)³⁵ and the child credit. For instance, the EITC is applicable to both the unmarried parent and the married couples. In the latter case, however, spouses ought to file jointly.³⁶ There is no special reason for that, and it seems that married parents are penalized when deciding to file separately, by having this important credit taken away.

The tax brackets long provided higher rates for those filing as single.³⁷ Under a third option, Head of Household, one can file under lower rates, considering that she has dependents in her house (either children or relatives.) These dependents are defined broadly, but mainly consist of people bearing a relationship with the taxpayer based

30 The issue reached a peak of attention upon the decision in United States v. Davis, 370 U.S. 65, 82 S.

Ct. 1190 (1962), now overruled. In that case, the court deemed that transfers of appreciated property to the wife upon divorce were taxable, in that the state did not recognize any right toward marital property. The decision triggered the reaction of many stakeholders and led the IRS to equate the fiscal treatment of divorce transfers in community and non-community states. See REV.RUL. 81-292, 1981-2 C.B. 158 (1981).

31 Kahng, supra note 29.

32 The eligibility to file under Head of the Household is laid out in 26 U.S.C. § 2 (b).

33 See 26 U.S.C.S. § 6103.

34 26 U.S.C.S. § 7703 (b)(1),(2),(3).

35 Kerry A. Ryan, EITC As Income (In)Stability?, 15 FLA.TAX REV. 583 (2014).

36 26 U.S.C.S. § 32.

37 Lily Kahng, One Is the Loneliest Number: The Single Taxpayer in a Joint Return World, 61 HASTINGS L.J. 651, 668 (2010). The recent tax reform attempted to reduce the marriage penalty by putting joint filer brackets at twice the single individual brackets, thereby reducing the marriage penalty.

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on blood or legal ties. The subsidized family thus coincides with the married family and, to a lesser extent, the so-called kinship family.³⁸ The only exception to the foregoing is Section 152 (d)(2). Pursuant to this clause, one can be considered a qualified relative (therefore triggering the lower rates under the Head of the Household filing status) if she is an unmarried person living in the house for which the taxpayer provides at least one-half of her financial support.³⁹

Both the filing status as Head of Household and the extension of the notion of dependent were introduced to mitigate the disparate treatment accorded to some non-traditional families. In this sense, a family where a relative or unmarried person can show dependency, in the sense above specified, can enjoy a better treatment than that reserved to single taxpayers. Then, what is the problem?

The problem is two-fold: first, “relatives” are not entitled to the credits (and particularly to the EITC, which is the big deal;) they merely trigger some deductions.

Second, there are some barriers concerning the burden of proof. Unlike the child tax credit, where it is sufficient to show that the child, if working, is not earning more than half of her financial support, in this case one has to show that the taxpayer is providing for at least half of her financial support. This means that the complicated recordkeeping, including receipts of food, clothes, shelter, etc., associated with meeting this requirement constitutes a barrier to showing dependency.

The married couple usually enjoys a more convenient fiscal treatment. More often than not, married couples filing jointly receive a bonus: they pay less than the sum of their taxes due if each had filed separately.⁴⁰ Only occasionally, their joint filing is

38 See 26 U.S.C.S. § 152 (d)(2). Pursuant to the rule, a relationship is relevant when the person is:

(A) A child or a descendant of a child.

(B) A brother, sister, stepbrother, or stepsister.

(C) The father or mother, or an ancestor of either.

(D) A stepfather or stepmother.

(E) A son or daughter of a brother or sister of the taxpayer.

(F) A brother or sister of the father or mother of the taxpayer.

(G) A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.”

39 26 U.S.C.S. § 152 (d)(2)(H) reads as follows: “(H) An individual (other than an individual who at any time during the taxable year was the spouse, determined without regard to section 7703, of the taxpayer) who, for the taxable year of the taxpayer, has the same principal place of abode as the taxpayer and is a member of the taxpayer’s household.”

40 Marriage penalties and bonuses, TAX POLICY CENTER,

http://www.taxpolicycenter.org/topic/individual-taxes/marriage-penalties-and-bonuses (last visited Jan 24, 2018).

more than the sum of the respective bills. This is known as the “marriage penalty.”⁴¹ It occurs only when the married couple is composed of two income earners, and only in the “extreme” situations where the double-earner family is low-income or has a high income.⁴² The reason behind that lies in the notion of family adopted by the legislature at the time of the enactment of the joint return filing status. At that time, Congress had essentially in mind a traditional, single-earner family, with segregated roles, consisting in the male being a breadwinner and the female being a caregiver and housekeeper.

The incentives toward the formation of this type of family union are embedded in the law. For instance, when low-income families are at stake, the scheme pushes them toward single earner households, in so far as the secondary earner will face much higher marginal tax rates than the principal earner.⁴³ The increase in the aggregated income, were the secondary earner to accept the job, is also likely to result in a reduction of the EITC.⁴⁴

However, the recent Trump’s fiscal reform moved to strongly attenuate the marriage penalty by setting the joint filer brackets at twice the single filer brackets.⁴⁵ This reduces the convenience of filing as single compared to filing as married in the case of a double-earner marital family. In addition to this, the reform increased twice as much the standard deduction for married couples filing jointly compared to the increase for single taxpayers.⁴⁶

41 Lily Kahng, The Not-So-Merry Wives of Windsor: The Taxation of Women in Same-Sex Marriages, 101 CORNELL L.REV. 325, 364 (2016) (“This left only one group to pay disproportionately high taxes:

single taxpayers, whose taxes ranged from 20% to 40% higher than that of an equivalent joint filing couple. In 1969, Congress cut their taxes, too, by capping their taxes at 20% higher than the taxes paid by equivalent joint filing couples. The effect of these changes was to create a mix of marriage bonuses and penalties that we see today. Prior to 1969, married couples never paid more than a comparable unmarried couple, and sometimes paid less. However, the 1969 law, when it ameliorated the tax burden on single filers, for the first time imposed a higher tax on a married couple than on an unmarried couple with the same combined income. Thus, after 1969, a married couple sometimes paid less, or sometimes paid more, than an unmarried couple with comparable income-the creation of marriage bonuses or penalties.”).

42 Edward J. McCaffery, Taxation and the Family: A Fresh Look at Behavioral Gender Biases in the Code, 40 UCLAL.REV. 983 (1992-1993).

43 Id.

44 See Kahng, supra note 41, at 356.

45 Davis Polk, GOP Tax Cuts and Jobs Act: Preview of the New Tax Regime, Client Memorandum, December 20, 2017, 1, available at https://www.davispolk.com/files/2017-12- 20_gop_tax_cuts_jobs_act_preview_new_tax_regime.pdf?fbclid=IwAR3JS7mEouvX3RZ-67-D9IiyGDAqJISSy4hHrmYQfEJF0ZlOdx4-mr0xgIw (last visited Oct. 30, 2018).

46 Id, at 2.

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A second type of marriage penalty may occur in the case of the taxation of social security. One spouse might for instance receive tax-free social security benefits.

However, when her income is aggregated with the income of her spouse, she might no longer be eligible for this tax exemption, as she can find herself over the income maximum limit.⁴⁷