What and how a country chooses to tax speaks volumes about its values.
A core value embedded in America’s DNA, for example, is equality. And in practice, Americans imagine their country to be more equal than it is and strive to treat every member of society that way.
But, as I learned while researching my book “Our Selfish Tax Laws: Towards Tax Reform That Reflects Our Best SELF,” US tax laws paint a different picture.
Instead of reflecting a society that is constantly striving to improve itself, US tax laws are mired in the past. They reinforce the social and economic marginalization of women, racial and ethnic minorities, the poor, members of the LGBTQ community, immigrants and people with disabilities.
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Tax and marriage
For example, US tax law has made marriage the defining characteristic of all individuals when deciding how tax returns are to be filed. That is, most Americans file their 1040s either as “single” individuals or as “jointly married filers”. But even when taxpayers in these two groups have equal incomes, they are not necessarily treated equally.
Among married couples, our tax laws grant preferential treatment to those whose marriage conforms to “tradition”, that is to say where one spouse works in the labor market and the other in the labor market. House. These couples are rewarded because they pay less tax than if they earned the same amount but did not get married.
In contrast, those living in “modern” marriages – each spouse working outside the home – often face marriage penalties. These couples pay more taxes than if they earned the same amount but did not get married.
And “single” taxpayers never receive a bonus but often pay more tax than a married couple with the same income.
While the Tax Cuts and Jobs Act passed in 2017 temporarily eases marriage penalties for some two-earner married couples, it does not address other aspects of tax laws that contribute to the marriage penalty. Low-income married couples, for example, still face significant marriage penalties under the earned income tax credit.
At the same time, the law increased bonuses paid to single-earner married couples that financially encourage one of the spouses – traditionally the wife – to stay at home. To take a simple example, a person earning $ 100,000 with no dependents who take advantage of the standard deduction would see a 43% tax reduction in 2018 by marrying a stay-at-home spouse, but would only see a reduction of around 38% in 2017..
The penalty for not getting married has increased accordingly.
Another example is the tax treatment of rewards for discrimination in employment.
Traditionally, compensation for bodily injury has been excluded from taxable income. Courts disagreed on whether rewards for employment discrimination were covered by this exclusion, with some jurisdictions allowing such rewards to be recovered tax-free and others requiring that they are imposed. In 1996, Congress stepped in to end the litigation on this issue and decided to remove the exclusion, forcing workers to report employment discrimination compensation out of their federal taxes.
Disadvantaged groups are the most likely to suffer from discrimination in employment. The main categories of discrimination reported by the Equal Employment Opportunity Commission include race, disability, sex, age and national origin. Members of the LGBTQ community also suffer from discrimination, but legal protection is not available to them in all states.
All of these groups bear significant monetary and psychological costs as a result of discrimination in employment. The rewards given to them are meant to help mitigate those costs – to make them complete. Such allowances should not be taxed more than the allowances which render car accident victims free from their injuries, which are still covered by the exclusion.
On the other side of the ledger, Congress continues to let employers required to pay these discrimination rewards deduct them from their tax bills as business expenses.
If the goal is to prevent discrimination in employment, it is counterproductive to penalize taxed workers while rewarding employers who have allegedly or actually discriminated with an advantage.
Again, the Tax Cuts and Jobs Act nodded to reform – and the #MeToo movement – by removing this employer deduction for settlements in some cases of sexual harassment. But that misses the big picture and the deeper issue with the tax code.
A significant tax reform
These are just two of many examples of how US tax laws present a distorted picture of what Americans value and what kind of society America aspires to be.
So when politicians talk about “tax reform”, the stakes are much greater than maintaining political power or granting tax cuts. Real tax reform takes time and should involve discussions among the electorate and with politicians about the role that tax laws play in exacerbating social and economic inequalities.
In this way, Americans can build a tax system that helps create a fairer society rather than a society that simply rewards privilege.
Anthony C. Infanti is Professor of Law at the University of Pittsburgh. This article originally appeared on The Conversation. Read the original article.