Reply #34: Most of you are mostly wrong -- It's California's fault!! [View All]

[HamdenRice]

I don't mean to sound presumptuous, but I actually research and teach in this area, and the answer is not what you expect -- in fact, it is very surprising.

In a way, most of the benefits that married people get are really just an artifact of the way federal law has to treat state law and -- get this -- an artifact of the Spanish conquest of Mexico!

The reason most of these tax benefits were enacted is that the states that were once part of Mexico (or in the case of Louisiana, France) have a different system of marriage than the states whose marriage systems can be traced to England. The states with English common law origins have "separate property" marriage systems and the former Spanish and French states have "community property" systems.

Under separate property, husbands and wives were treated as though each person has his own property and income (although husband was granted control over the wife's property). In community property systems, each spouse has 1/2 ownership of the other's income no matter who actually earns it.

When the income tax was first created, the federal tax law had to look to state marriage law and property law as to how to characterize ownership of the income. This was when most wives did not work and were supported by their husbands. Also, at the time there were not options on filing like married filing jointly and married filing separately.

In a community property state, if the husband earned $50,000 and the wife earned nothing, federal income tax had to treat the husband as though his income was $25,000 and wife as though her income was $25,000.

In a separate property state, however, husband was treated as having income of $50,000 and wife as having zero. Hence the tax rate, being graduated, was higher in separate property states than community property states. There was a rush by state legislatures to switch to community property. That's why there are a few non-Spanish origin states with community property.

To equalize the tax burdens, and avoid forcing states to change their marriage systems, Congress began introducing all of these "tax benefits" to married couples in order to treat married couples in Massachusetts and New York the same way it treated married couples in California and New Mexico.

Since then, policy justifications have been added, but surprisingly, the difference between community property and separate property has continued to drive a lot of federal tax policy toward married couples.