Marriage and Tax

A letter from the FTM to a journalist:

I have read your article with interest and have come to the conclusion that, like the rest of the population, you are only guessing and jumping to conclusions as far as “tax breaks for marriage” are concerned.

Just what do the Conservatives mean by this (and have they even thought it through themselves)?  A tax break for marriage in the proper sense of the word would amount to the re-introduction of the Married Couple’s Allowance (traditionally worth half a personal allowance) that could be deducted from 1 income.  The original Married Man’s Allowance came about at a time when it was unthinkable for a married woman to earn an independent income.  Both Conservative and Labour Chancellors did a thorough demolition job on that.  That allowance had become largely irrelevant with so many couples earning 2 incomes.

Independent taxation was introduced in the late 1980’s and that was of considerable benefit to double earner couples as they could now claim a personal tax allowance each (worth £6.475 for each earner =  £12.950).  Moreover, it gave them the benefit of two basic rate tax bands which often meant that higher rate tax would cease to be payable.  However, married breadwinner families on 1 income were the net losers.  They lost their Married Couple’s Allowance and gained nothing from the individualisation of personal taxation.  The brain behind this reform was Nigel Lawson.  He could foresee this net loss and therefore proposed that, to compensate for the loss of this allowance, one-earner couples would be able to transfer, wholly or partially, an unused personal allowance to the earner.  Ignorance and prejudice on the part of certain opponents saw this off.

You assume that the latter would be the case and then go on to write that this proposal would be hugely redistributive.  Looked at logically (and given the necessary funds), such a scheme would produce no “losers”.  It would merely mean that these one-earner families would at long last reach parity with families where the income is earned by 2 rather than 1.  You are entirely wrong to suggest that such a tax break would only benefit the wealthiest of couples.  The very wealthiest who have so much return on their investment that  a minimum of £6.475 of this unearned income is transferred to the non-earner would gain nothing from transferable tax allowances, as the personal allowance of this non-earner would already be fully used.  Further monies would be taxed.

Couples with only one breadwinner are not necessarily at the upper end of the income scale.  Many believe strongly in a parental presence in the home when their children are small and are prepared to make huge sacrifices.  It’s a pity that the efforts of such parents are not calculated in the country’s GDP.  For insurance purposes they have recently been calculated at £33,000 (Legal & General March 2009).  And then of course there are those families where one parent has been made redundant, those who are unable to find a suitable second employment and those families where the father is in the Forces and/or needs to travel a great deal for work reasons.

The cost would be entirely dependent on the number of people to be included.  Married with very young children only?  All married 1 income couples? Those in Civil Partnerships?  None of us know and we should not be so quick to rubbish the idea.  Research shows consistently that children who grow up with married parents collectively do best by every indicator and for that reason alone it would be a good idea to start to build a framework upon which the institution could thrive and to recognise that, at different times and for different reasons, one partner in a marriage may need to support the other. Such a way of living is not “bad for inflation and for growth” nor is it tantamount to living off the state.

I have pleasure in enclosing a leaflet that we have written last year on the topic of Income Splitting.  It goes but one step further than transferable tax allowances and it shows convincingly that, rather than add another layer of complexity to an already complicated tax system, it would actually simplify it.  Again, it would be for a government to decide which groups of people should be included.  It would be expensive, but there’s no harm in planting a few seeds now in the hope of better times to come.

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