Taxes and Transfers: A New Look at the Marriage Penalty

The transfer system typically has large marriage disincentives, while the income tax system is likely to subsidize marriage for many low-income families. In other words, the tax system may mitigate the loss of transfer benefits associated with marriage. The relevance of the income tax system for low-income families is even greater with the recent expansion of the Earned Income Tax Credit which filers may be eligible for even if their tax liability is zero. The interaction of the transfer system with the income tax system has been largely overlooked. This paper describes the distribution of the joint change in transfer benefits and tax liability associated with a change in marital status for low-income married couples with children. In addition, we predict changes in transfer benefits and tax liability that accompany marriage for a sample of low-income single women with children.