Some gay couples will save thousands of dollars on their taxes due to the federal Defense of Marriage Act, which bars federal recognition of gay marriages. These couples are in community-property states such as California, Washington State, and Nevada that allow gays to marry in all but name. DOMA enables gay couples to avoid the federal marriage penalty that applies to heterosexuals, even though state community-property law lets them reduce their tax liability by averaging-out the partners’ incomes. (This may be one of the reasons why “DOMA costs the U.S. Treasury $1 billion a year,” according to a Congressional Budget Office study).
The Wall Street Journal explains:
This is an extreme case, but it highlights an irony about the whole gay-marriage fight: the “right” to government recognition of one’s marriage is often a curse, rather than a blessing. As the Journal notes, the tax-preference for gays “is a sharp reminder of the ‘marriage penalty’ that often dings two-earner couples.” (When I got married, I thought that my wife and I would save money on our taxes. But we ended up paying more.)
As the Wall Street Journal notes, both high-income and lower-income households are penalized for being married, in different ways. “The higher brackets” of the tax code “are less generous for married couples than they are for singles.” For lower incomes, the biggest problem is the Earned Income Tax Credit, which is available to low-income unmarried couples with children, but not low-income spouses with the same joint income and number of children, who face a different income threshold. Tax credits often discriminate against married people. The income of social security recipients is taxed more if they are married than if they are just living together, since the taxes kick in at a lower “base amount” of combined income if they are married.
The first litigant harmed by Virginia’s constitutional amendment banning gay marriage and civil unions, the Marshall-Newman Amendment, was not a gay person, but a heterosexual man trying to cut off alimony to his ex-wife, a lesbian, after she began cohabiting with another woman. Under Virginia law, alimony not only ends upon remarriage, but also when unmarried cohabitation in a sexual relationship occurs. But trial judge Langhorne Keith refused to apply that principle to gay cohabitation in Stroud v. Stroud, citing language in the Marshall-Newman Amendment that barred treating gay partnerships like marriages. The Virginia Court of Appeals later reversed that ruling and cut off the alimony, but only because the man had a divorce settlement with his wife that arguably made it easier to cut off alimony upon cohabitation than would usually be the case under Virginia law. It did not decide whether the law itself would have mandated that result (even though cutting off such alimony would be consistent with the purpose of the Marshall-Newman Amendment, which was hardly intended to encourage people to enter into gay relationships by making them more financially advantageous than heterosexual ones).
In California, a superior court judge also refused to cut off a man’s alimony payments despite cohabitation, based on the same-sex nature of the cohabitation. In a different case, the California Supreme Court later cast doubt on that ruling, suggesting in a footnote of its opinion that gay cohabitation should be treated the same as heterosexual cohabitation as a factor in whether to terminate alimony.
For small-business owners, getting married can expose their business to substantial risk, since in the event of a later divorce, a trial judge with little understanding of economics may divide up a spouse’s business between the spouses in ways that are arbitrary and lead to unnecessary tax liability. For examples of how divorce courts mistreat small businesses and American soldiers, see my commentary at this link.
