SJR 12 - ELIMINATE MARRIAGE TAX PENALTY Number 0828 CHAIR COGHILL announced that the next order of business would be SENATE JOINT RESOLUTION NO. 12(title am), Urging the United States Congress to amend the tax code to eliminate the marriage penalty. Number 0842 SENATOR LOREN LEMAN, Alaska State Legislature, spoke as prime sponsor of SJR 12. He explained that under the federal tax code, married couples pay more than they would if they were single people living together. He called it "a basic unfairness that Congress has been trying to address." Last year, legislation passed by Congress was vetoed by the president. Senator Leman said it appears that Congress intends to deal with the marriage penalty again, and that the issue remains one of United States Senator Frank Murkowski's priorities. SENATOR LEMAN estimated that 67,000 couples, or about 134,000 people in Alaska, are affected by the marriage penalty. The tax code is complex, and there are about 60 provisions in it that either contribute toward or affect the penalty. The two main reasons for the marriage penalty are the standard deduction and the graduated rate structure. SENATOR LEMAN directed attention to a table in committee packets that showed how the penalty affects people in various income categories. He explained that the basic problem is that when two people are earning income, the standard deduction for joint filers is less than twice that for a single filer, thereby creating the penalty. In addition to the smaller standard deduction, income tax rates are higher for married joint filers. He noted that this not only affects those in the higher income levels, but people at all income levels, including those in the lower levels who receive earned income tax credit. SENATOR LEMAN voiced his opinion that the tax code should not penalize marriage. "In fact," he said, "we ought to do everything we can to encourage it. I believe marriage provides a societal good and the tax code should at least be neutral toward it." Number 1144 ROBERT F. SRAMEK, Certified Public Accountant, Anchorage, testified by teleconference. He explained a third way in which the marriage penalty affects taxes, saying many income tax deductions are reduced and phased out as a person's adjusted gross income increases. Among them are the deductions for interest paid on student loans and for contributing to Individual Retirement Accounts. Married people filing jointly have a proportionately higher adjusted gross income, so the amount that they lose accelerates. MR. SRAMEK said another area in which Alaskans are impacted is in the taxation of dependent children's Permanent Fund dividends. Any dependent who has an income above $1,400 is taxable. If the child is under 14 years old, anything in excess of that $1,400 is taxed at the parents' incremental rate. "And so," he said, "we have one-year-old kids being taxed ...[at rates] all the way up to 39.6 percent on a portion of their Permanent Fund dividend, which obviously is not real fair." MR. SRAMEK then described an area of concern to senior citizens: the more income a person has, the greater the probability that the person's Social Security monies will become taxable. For a single individual, the amount of income [at which Social Security income becomes taxable] is $25,000; for a married [couple], the amount is $32,000. When a person has income in excess of that amount, then that person's Social Security monies become taxed as well [as other income]. He mentioned a trend toward senior citizens choosing to live together instead of marrying simply because of the negative tax consequences of marriage. MR. SRAMEK said he has heard there are more than 60 areas in the federal tax code in which there are these kinds of disparities. He said he'd be surprised if there are only 60, because there are so many provisions that are either impacted by adjusted gross income or in which there's a definite difference in the way a married person is taxed as compared with a single person. So it's not just a young person's issue and it's not just an old person's issue, it's everyone's issue, he concluded. CHAIR COGHILL quoted the part of SJR 12 that read, "[Further] Resolved that this legislation equalize the standard deduction ...." He asked if equalization would bring the proper parity. MR. SRAMEK replied, "It would be Step One," adding, "The internal revenue code is now larger than the Bible. To correct all of the inequity would be a major undertaking. This [SJR 12] would be a first step, but it would not resolve all of it. REPRESENTATIVE JAMES thanked Senator Leman for sponsoring SJR 12. Number 1562 REPRESENTATIVE HAYES moved to report SJR 12(title am) out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, SJR 12(title am) was reported out of the House State Affairs Standing Committee.