Single and Paying For It
Most single people are required to pay income taxes once their income barely exceeds the poverty level.
Question 9. Ask the Candidate:
Why shouldn’t Congress do for single people what it does for a family of four—exempt them from income tax until their income rises well above the poverty level?
"If taxation is a badge of free men, let me assure my friend that poor people of this country are covered all over with the insignia of free men."
—William Jennings Bryan
Sometimes (you may say, often) one policy of Congress is so wildly inconsistent with another that you wonder if anyone up there, or down there, knows the big picture.
Presumably to promote family values, Congress has set the income tax threshold for a married couple, if both work and have two young children, at nearly 2-1/2 times their official poverty threshold. The couple's poverty threshold this year is $21,200. The couple's income tax threshold--the level of income[1] which will be exempt from tax--is $51,450, assuming they claim only a standard deduction and receive, as would be expected, child credits and child care credits.[2] Of course, if they itemize their deductions, which over 50% of married couples do, they could have much more income and still not owe any income tax. (Taxpayers claim a standard deduction when it exceeds the amount they could claim if they itemized their deductions. The principal itemized deductions are for mortgage interest, state and local taxes, and charitable contributions.)
The government establishes poverty thresholds to identify the number of us who are "poor." But Congress clearly recognizes, as it should, that a family of four needs income far above its poverty threshold before it should pay for government activities with one dollar of income tax.
Congress is noticeably less sympathetic to the plight of single people--people who are unmarried and have no dependent child. The miserly threshold above which they begin to pay income taxes is only a few dollars above their poverty threshold. That seems highly unfair, even cruel. The choice to be single, whether temporary or permanent, should be accorded the same dignity as the choice to marry, shouldn't it? Including under our tax laws. Yet if you viewed single people solely by the way Congress chooses to tax them, you might think they were, well, almost un-American. That's not right. It's time for Congress to recognize that single people deserve the government's compassion under the tax laws, too.
Trying to Live on $962 a Month
In 2008, the poverty threshold for single people is $10,400. Yet, three-quarters of all single people, claiming only a standard deduction, will owe income taxes once their income exceeds $10,540 or, in most cases, a mere $8,950. [3] (Only about one-quarter of all single people itemize their deductions.)[4]
Consider the situation of a single person--we'll call her Meg--and let's assume that she actually earns $12,500, slightly more than the $12,300 federal minimum wage as of July 2008. What is it like for her to try to live on that amount this year in a typical American city? Well, it isn't really $12,500, because 7.65% will be withheld for Social Security and Medicare taxes. That leaves $11,544, or $962 a month, before she pays any federal income tax.[5]
Meg lives by herself in an efficiency apartment, doesn't own a car, and takes the bus for work and personal trips. In a typical American city, she could have rented that apartment for $350 to $750 a month. Let's say her monthly rent is $500, which leaves her with $462 to pay for everything else--food, clothing, furniture, apartment supplies, personal supplies, telephone, laundry, sales taxes, state income taxes, other possible taxes, public transportation to and from work and for personal needs, and much more. (Heaven forbid she should actually buy a magazine or go to a movie.) Health insurance alone--she doesn't qualify for Medicaid because she doesn't have a dependent child--would consume much of the $462, so she goes without it and crosses her fingers. It isn't really a choice anyway: She likely will run out of money before she finishes paying her other bill. Clearly she can't afford to pay any federal income tax.
What Congress Should Do
Raise Tax Threshold to Cover Necessities. To be fair, and sensible, Congress should apply the same principles for establishing the tax threshold of a single person as it does for establishing the tax threshold of a family of four. Like that family, a single person needs considerably more income than her poverty threshold, or even what she can earn from the minimum wage, before she can afford to pay for necessities and have money left over to pay an income tax. The easiest solution would be to provide single people with a higher earned income credit (see Question One).
Congress's indifference to this issue is striking because close to 60 million single tax returns will be filed this year. In fact, single tax returns will outnumber joint returns. Then again, if this year were typical, a relatively small percentage of single people would show up at the polls at election time, whereas married couples can be expected to vote in high numbers.
How candidates feel about the tax threshold of single people could reveal a great deal about their values. The issue will be particularly interesting to raise with incumbents who never have demonstrated any interest in it before. Of course, the cause of the forgotten single taxpayer could become surprisingly popular with candidates if their pollsters advise that single people might vote in historic numbers this year, as appears to be true so far, and that a candidate's commitment to raise their tax threshold will influence how single people vote. Are YOU single people listening?
[1] I have used "income" in this Question 9 to mean "adjusted gross income," which is the income remaining after certain "adjustments" identified on our tax return, such as for IRA contributions and self-employment taxes.
[2] To calculate the $51,450: Subtract $14,000 for 4 personal exemptions of $3,500 each, and subtract $10,900 for their standard deduction, which leaves $26,550 of taxable income. The tentative tax: $3,200. Then subtract from the $3,200 the following tax credits: a $1,000 child credit for each child, for a total of $2,000-the credit is available for most children who are under age 17), and a $600 child care credit for each child, for a total of $1,200 (see Question 3 for details), for a total of $3,200 of credits. Their tax: zero. Both parents must work in order to qualify for a child care credit.
[3] Single people who claim a standard deduction and have income in excess of $12,500 owe an income tax once their income exceeds $8,950-the sum of their personal exemption ($3,500) and their standard deduction ($5,450). Single people who claim a standard deduction and have income up to $10,540 do not owe any tax because they also benefit from a small earned income tax credit (EIC). The EIC declines as income rises above $10,540, exposing some income below as well as above $10,540 to tax, and falls to zero once a single person's income exceeds $12,500, which leaves their income above $8,950 exposed to tax.
[4] Of course, if single people itemized their deductions, their tax threshold could be much higher. In 2005 (the most recent year for which the IRS has final figures), 76% of all single taxpayers claimed the meager standard deduction because it was more than what they could itemize; only 24% itemized. Internal Revenue Service, Statistics of Income, 2007, Vol. 27, No. 2. Comparable figures can be expected for 2008.
[5] Her tax on $12,500 of income would be $355: $12,500 - $8,950 for her personal exemption and standard deduction leaves $3,550 of taxable income, which would be taxed at the 10% rate.