Same-sex couples aren’t the only winners in the latest Supreme Court ruling which declared the Defense of Marriage Act unconstitutional. The federal government wins as well, financially. Many people might think the federal government will lose revenue because spouses are not usually subject to estate taxes. After all, this case focused on Edith Windsor’s claim she was required to pay federal estate tax of more than $363,000 because federal law does not recognize same-sex marriages. Ms. Windsor married her same-sex partner, Thea Clara Spyer, in 2007. When Ms. Spyer passed away in 2009, she left her entire estate to her spouse, Ms. Windsor.
It’s true the government will be missing out on some estate taxes because of this ruling. However, estate taxes never generated a lot of revenue and will be less since the exemption has been raised to $5.25 million. The government makes up for this loss now that about 600,000 more couples will be subject to marital upper-bracket tax penalties.
The Bush Tax Cuts attempted to eliminate the marriage penalty 12 years ago. However, the marital penalty still exists for couples of all genders who earn a combined amount of more than $146,400 a year. If each spouse earns about half of the income, the government will take about 5% more of every marginal dollar earned than what they would owe if they were each filing a single return. The American Taxpayer Relief Act of 2012 (ATRA12) restored the top tax rate of 39.6% for taxpayers with income over $400,000 ($450,000 for joint filers) making the penalty even worse. The new Medicare surtax taking effect this year also carries a marriage penalty; an additional tax of 3.8% to the lesser of net investment income or the excess of modified adjusted gross income over the threshold of $200,000 for single taxpayers and $250,000 for joint filers.
The Congressional Budget Office estimated same-sex couples filing jointly would open up $500 to $700 million a year in higher tax receipts before ATRA12 and the Medicare Surtax took effect. New estimates were not available, but it’s likely wealthy same-sex households will be spending billions of dollars in additional taxes for the right to get married.