Marriage or Cohabitation: The Effects of the Marriage Tax

This paper examines the marriage tax paid by couples in 2000 using the U.S. Census data from that year. The U.S. Census data allows the study to focus on cohabiting and married couples, and ignore individuals, to overcome the inaccuracies that can result when the income of a potential spouse for an individual must be estimated. The marriage tax for couples is calculated and examined. Then, the effect of the marriage tax on the likelihood of marriage, as opposed to unmarried cohabitation, is calculated. As expected, an increase in the marriage tax has a small negative effect on the likelihood that a couple is married. A one standard deviation increase in the marriage tax causes a decrease in the likelihood of marriage of about 0.2673 percentage points. This would mean that the if there was a one standard deviation increase in the marriage tax the proportion of couples actually married would be 92.5% rather than the current 92.8% . However, several other factors are found to have a much larger effect on the likelihood of marriage. The paper concludes with a brief discussion on the income tax implications of the federal legalization of same-sex marriage. A prediction is made as to which same sex couples would elect to marry if it were legalized, and this prediction is used to estimate the aggregate effect of legalization on federal income tax revenues. Acknowledgements: I would like to thank my advisor Professor Boyle. Her guidance and knowledge were essential for this research project. Also, I would like to thank Professor Cahill for his assistance through the honors program. Finally, I would like to thank Professor Baumann and Professor Soares for their help with data collection and statistical analysis.