Not Your Father’s Marriage Penalty
Stacked AGI-linked programs are quietly driving 40–55% effective marginal tax rates for working-age households
For decades, the marriage penalty debate focused on tax brackets. That’s no longer where the real distortions live. Today’s incentive problems come from stacked, AGI-linked programs — ACA premium subsidies and income-indexed student loan repayment formulas — that can generate effective marginal rates far above statutory rates during working years. This note explains why the modern marriage penalty isn’t in the tax table — it’s in the subsidy formula — and introduces the full paper now available to subscribers.
Many economists (Gary Becker, Nada Eissa, Hilary Hoynes and others) have examined issues related to marriage, marginal tax rates and work incentives. Robert Moffit clarified that the phase-out of benefits is equivalent to higher implicit marginal tax rates.
There are additional AGI linked programs distorting behavior today. A recent SSRN paper shows how a decision to maximize liquidity in working years can motivate workers to choose conventional retirement accounts over Roth accounts, a decision that can backfire badly in retirement. A recent short post shows that a $20,000 salary increase does not go very far for people with student debt payments and insurance premiums linked to their AGI.
A new paper titled, Not Your Father’s Marginal Tax Rate and Marriage Penalty, shows how these stacked programs can push effective marginal rates into the 40 to 55 percent range, not because Congress raised statutory income tax rates, but because eligibility thresholds and percentage-based repayment formulas amplify income changes. The analysis also shows these new programs create and incentive for people to remain single.
In many cases, the largest burdens arise from design features such as abrupt subsidy cutoffs and full-income repayment jumps, not from the income tax schedule itself.
The full 3700 word essay is available to paid subscribers.
