Eliminating Marriage Penalty May Do More Harm Than Good for Economy, Clinton Says

Tuesday, December 16, 1997

OnLine

President Clinton agreed Dec. 16 that the marriage penalty is unfair to some couples, but expressed skepticism about proposals to eliminate it because it is unclear where the funds to offset the revenue loss will come from.

"On principle, I don’t like the marriage penalty ... but how would you pay for it," if it were to be eliminated, Clinton asked in a nationally televised news conference. Budget rules require that any revenue loss from a tax cut be offset by an equivalent revenue increase or spending cut.

The so-called marriage penalty results from instances in which married couples pay higher taxes than they would if they were not married and filed tax returns separately.

No decision has been made about whether the issue of cutting taxes will be addressed in State of the Union address to be delivered Jan. 27, Clinton added.

More generally, Clinton urged those calling for tax cuts not to spend any anticipated budget surplus at least until it is absolutely clear that one exists. Many anticipate that the Congressional Budget Office will report in January that the projected budget deficit for fiscal 1998 will be lower than anticipated.

It also important to remember that the fiscal discipline exercised in Washington has contributed to the nation’s overall economic strength. "We have worked so hard to make this country work again," so the nation should not abandon capriciously the policies that got it where it is today, the President said.

Clinton did not rule out the idea of reforming the tax system, but he gave no indication that he would fight for large-scale changes. Overhauling the tax system must not blow a hole in the deficit; the revised system should not create losers and winners; it should be good for the economy; and it should simplify the tax system, he said.

States in Good Fiscal Shape, Survey Says: The strong economy has placed more-than-expected revenue into state coffers, allowing moderate tax cuts and increasing reserves for the next economic downturn, according to a nationwide survey released Dec. 16.

"States are building up reserves to combat future economic downturns and for other unforeseen circumstances," the report, cosponsored by the National Governors’ Association and the National Association of State Budget Officers, stated.

States are cautious and selective in their spending commitments despite the increase in funds available, the report said. As a result, states have granted pay raises averaging 3.7% for fiscal 1998 and increased investments in child development and transportation, while shifting funds from social services due to the substantially decreasing caseloads, added the report.

IRA Contribution Limit Criticized: The current $2,000 contribution limit on Individual Retirement Accounts set in 1981 hinders middle-income taxpayers’ savings by ignoring increases in prices and wages and should be raised, according to a Dec. 9 Joint Economic Committee report.

"Expanding IRA tax benefits would generate significant gains for middle-income families while reducing the bias against saving that exists under current law," the report said.

While the report stated that the recently passed tax law made progress in expanding individuals’ incentives to save, Congress must offer greater saving incentives due to longer life expectancies, rising medical costs, and the potential insolvency of Social Security.

The revenue lost from raising the contribution limits will be recovered by the increase in corporate tax revenue collected from added capital investment, the report concluded. The higher level of investment earnings also would increase the amount of personal tax revenue the government collects, it said.

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