Single and Paying For It

Most single people are required to pay an income tax once their income is only a few hundred dollars above the poverty level.

Question 10. 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?

Congress has assured the traditional family of four—two parents and two children—that its income may be more than twice the official poverty level before it is to pay any income tax. By setting this tax threshold, Congress recognizes that this family is entitled to something considerably greater than the bare necessities of life before paying any income tax. Most single people—people who are not married and don’t have a dependent child--are allowed only the barest of necessities before they must begin to pay an income tax. They deserve something better.

Congress’s Choice of Tax Thresholds

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.

The federal government’s poverty guidelines help the government decide who is “poor” and thus may qualify for federal assistance. For 2012, the traditional family of four is deemed poor if their income is not more than $23,050.  On the other hand, Congress excuses that same family from paying any income tax until its income exceeds $54,200, assuming both parents work and don’t itemize their deductions;[1] the figure could be considerably higher if they itemize.

You get it! Congress doesn’t believe the traditional family of four should pay even $1 of tax until its income is 2.3 times its poverty threshold. But if that family earns just a little income over that poverty threshold, Congress will carefully examine whether it qualifies for welfare. 

Even if you favor a higher tax threshold than the poverty threshold, you might still wonder why the poverty threshold is so low.

Many readers may agree that income tax thresholds should be much higher than poverty thresholds. Other readers might view poverty and income tax thresholds as the flip side of the same coin. But Congress is, and has been for decades, inconsistent on this topic when it addresses single people.

The 2012 tax threshold for single people is $11,500,[2] barely above their poverty threshold of $11,170. Earn $11,600, if you are single, and you’ll owe a tax

This is more than unfair. It’s cruel. 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 to be treated fairly under the tax laws, too.

Trying to Live on $900 a Month

Consider the situation of a single person—we’ll call her Meg—who earns $11,500—the tax threshold. What is it like for her to tryto live on that amount this year in a typical American city? Well, it isn’t really $11,500, because 7.65% will be withheld for Social Security and Medicare taxes. That leaves $10,620, or $900 a month.

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 she would be lucky to get if she lived in my New England college town), leaving her with $400 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 $400, 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 bills. Clearly she can’t afford to pay any federal income tax if her income is only a bit more.

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 a family of four. Like that family, a single person needs considerably more income than her poverty threshold before she can afford to pay for necessities and have money left over to pay an income tax. At a minimum, this should cover what she could earn at the federal minimum wage, which this year is $7.25 per hour, or $15,500 for an average work schedule. At $8.00 per hour, her tax threshold would be $16,460, a more sensible figure.

Congress’s indifference to this issue is striking because over 60 million single tax returns will be filed this year. In fact, single tax returns will outnumber joint returns.[3] Then again, if this year were typical, a relatively small percentage of single people will 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 have never demonstrated any interest in it before. Of course, fair tax treatment of the single taxpayer could become surprisingly popular with candidates if their pollsters advise that single people might vote in historic numbers this year, and that a candidate’s commitment to raise their tax threshold will influence single people’s vote. Are YOU single people listening?

[1] From $54,200 of gross income on their income tax return, they subtract $15,200 for four personal exemptions ($3,800 each) and $11,900 as their standard deduction, leaving $27,100 of taxable income and a tentative tax of $3,195. They then subtract from the tax $3,200 of tax credits, reducing the tax to zero: a child tax credit (for a dependent child under the age of 17) of $1,000 for each child, for a total of $2,000; and a child care credit (for a child under the age of 13) of $600 for each child, for a total of $1,200, for child care costs while they both work.

[2] Single people will not owe any tax on up to $11,500 of income in 2012 by claiming a standard deduction, personal exemption, and a small earned income tax credit. Once their income exceeds $11,500, the EITC gets smaller and their income becomes exposed to tax, beginning at the 10% rate. If single people itemized their deductions, their tax threshold could be much higher; but at these low levels of income, they rarely itemize. 

[3] In 2009, the most recent year for official IRS numbers, about 63 million single tax returns were filed, and only about 56 million joint returns. Statistics of Income Tax Stats—Individual Income Tax Returns Publication 1304 (Complete Report), last reviewed and updated June 7, 2012.

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