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TAXATION WITHOUT REPRESENTATION:
A LOOK AT THE TAX PENALTIES FACED BY
GAY AND LESBIAN COUPLES AND FAMILIES

“No taxation without representation!” was one of the great battle cries of the American Revolution; the American colonists rightly believed that the taxes they paid to the British Crown entitled them to some proportional form of representation in Parliament. When King George III refused the colonists’ demand, war and the eventual independence of the United States of America was the result. Such was the motivating force behind the creation of our great nation.

It is truly sad, then, when the federal government (a government of the people, by the people, and for the people) turns its back on this most important ideal upon which this nation was founded, by subjecting gay and lesbian couples and GLBT-headed families to tax penalties as steep as 40% — for no other reason than the fact that they are gay or lesbian. In this essay, I will simply present facts and figures that are readily available from the Internal Revenue Service (IRS), and show the application of these figures to GLBT families.

First, I must lay out some background facts. I am using figures that apply to the tax year 2005 (for which Americans had until April 17, 2006, to file their returns). The IRS makes the Tax Table (which is found near the back of Form 1040, 1040A, and 1040EZ booklets) available on its Web site at http://www.irs.gov/pub/irs-pdf/i1040tt.pdf; what the Tax Table does is state the federal tax due on specific levels of adjusted gross income (AGI) for different classes of taxpayers. Specifically, I will be using the “married filing jointly” and “single” classifications to demonstrate the tax penalties that gay and lesbian couples and families face.

Scenario #1. Dick and Jane are a childless middle-class heterosexual married couple in Cincinnati earning a combined AGI of $58,000 per year. Their neighbors Adam and Steve are a gay couple who went to Massachusetts to obtain a marriage license; Adam and Steve have adopted two children who would otherwise languish in Ohio’s foster-care system, and Steve stays home to raise the kids. Adam earns an AGI of $58,000 in his job.

Remember, Dick and Jane are able to file their taxes as “married filing jointly,” but Adam and Steve, despite their legal and valid marriage certificate from Massachusetts, are required by federal law and tax regulations to file separate returns under the “single” classification. Technically, only Adam files a return here, because Steve doesn’t perform any compensated work. Here are the totals:

Adam and Steve face a tax penalty of $3,197, or a staggering 40.1% (!!!!), simply for being gay! A fact perhaps even more sickening than that is laid out in the following scenario.

Scenario #1a. Both Adam and Steve work in almost-identical clerical positions, making identical AGIs of $29,000 each annually. Since both of them work, they are required to put the kids in day-care or latchkey programs, or worse yet, leave them unsupervised at home after school. Everything else from Scenario #1 is the same.

Dick and Jane still calculate their taxes the same way, and arrive at the same tax burden. Adam and Steve must both file a “single” return on each of their $29,000 AGIs, and add their individual tax burdens together to arrive at their total combined tax burden. Here are the totals in this situation:

Adam and Steve find themselves in a far more favorable tax situation, but the potential cost to their children may be incalculable: perhaps the older daughter, left at home after school without her parents present, may sneak a boy in, experiment with sex, and become pregnant, simply because Steve wasn’t there to provide parental supervision. The federal government, in the most cruel and sickening way possible, seeks to destroy gay-headed families by forcing them to choose between the well-being of their children and a tax burden they can more easily afford! (The additional $4, while negligible, is still something of a slap in the face toward gay couples whose members make the same income.)

Let’s take a look at two more affluent couples.

Scenario #2. Fred and Ginger are an older couple whose kids are long gone from the house. Fred retired from GM as a high-level manager, and the couple now lives off his pension of $115,000 per year. James is a fresh-faced 24-year-old who just recently graduated law school and makes $115,000 per year; three years ago, he befriended and eventually fell in love with John, a student struggling to earn his GED after his parents threw him out of the house for being gay. They have had a commitment ceremony at their local United Church of Christ, and would become legally married in a heartbeat if Michigan didn’t have a constitutional amendment banning same-sex marriage. John is working his butt off in college now to finish his degree, with James’ financial support, and really doesn’t have the time to hold a job.

Again, you’ll see how the federal government puts greater value on Fred and Ginger’s enjoyment of their retirement years than on James and John’s hard work to make John a productive member of society and keep him off public assistance, for no other reason than the fact that Fred and Ginger are heterosexual and James and John aren’t. Here are the totals:

James and John are punished to the tune of $4,626, or 21%, simply because the strong, committed love they share is not considered valid by the bigoted anti-Christian haters in Congress who set tax policy! You will notice that on a percentage basis, James and John’s gay tax penalty is half of what Adam and Steve’s was; this is yet another metaphorical swing of the baseball bat at the heads of middle-class and poorer gay couples, who can least afford but are most affected by the federal tax penalties gay couples face.

(The tax advantages of a heterosexual marriage relative to a committed same-sex union slowly begin to evaporate at AGIs above roughly $180,000 per year (the top 2% of taxpayers), and completely disappear above roughly $500,000 (the top 0.4%); still, at least 98% of gay couples face some tax penalty for being gay.)

I should pause here for a moment to point out another important fact. The above situation with James and John, and the earlier one with Adam and Steve in which only Adam worked, only examines the penalty each couple faces in the realm of income taxes. These gay couples’ actual tax burdens, particularly James and John’s, are much worse than these tables indicate, due largely to the federal gift tax. This will be explained in greater detail at the very end of this essay.

Let’s change things around a bit for James and John.

Scenario #2a. We are now assuming John’s parents reacted in a far more favorable way when he came out, and supported him all the way through college to a finance degree. He earns an AGI of $57,500 from the bank that employs him. James, instead of being a lawyer, is a successful self-employed web designer and graphic artist who likewise nets $57,500 annually from his business. Obviously, their incomes add to $115,000.

Again, the identical incomes make a difference. Both James and John would pay tax at the single rate on $57,500, while Fred and Ginger could still pay the “married filing jointly” rate on $115,000. Here are the numbers:

Here, the difference is a mere $12, but that’s still $12 that James and John ought not be paying. Their relationship is just as committed, strong, and valid as that of Fred and Ginger, so why should they have to pay a tax penalty for it?

I know there are those who will look at the scenarios where the gay couple pays an extra $4 or $12 and say, “see, those gays don’t have it so bad, and they’re just pushing for ‘special benefits’ that nobody else has.” Some might be a bit more fair, and suggest that gay couples should do whatever they can to ensure that both partners have exactly equal incomes. I have a question: how do you think your employer would respond if you asked to be paid a salary well outside the accepted range in your profession, simply because you wanted to earn the same salary as your significant other? If your spouse makes a great deal more than you, you would be laughed right out the door — and I know there’s no way in hell you would offer to take a huge pay cut to equalize your salary with that of your spouse. Why should gay couples have to do that in order to reduce their tax burden to the level that heterosexual couples take for granted?

That said, I might recommend to gay couples that if there is a large income disparity between the two partners, the better-off partner should “hire” the less-well-off partner, perhaps to do clerical or side work, and pay him/her whatever amount is necessary to eliminate the income disparity. For example, let’s examine the hypothetical case of Chris, a doctor who makes $350,000 per year, and David, a systems technician who earns $50,000 per year. The couple is far better served for tax purposes to have Chris “hire” David and pay him a salary of $150,000 per year, even if David does not actually perform any work for Chris; this is probably as simple as drawing up some papers to show an employment relationship between the two men, although I must caution that I am not an attorney (and anybody reading this essay and considering this idea ought to consult one). That way, with equal incomes on two separate “single” tax returns, the couple would save over $6,100 in combined taxes relative to two returns with the wide gap in incomes.

As I mentioned above, the gay tax penalty is most severe on poor and middle-class gay couples. Let’s look at another scenario.

Scenario #3. José comes from one of the roughest neighborhoods in Chicago, and doesn’t have either a high school diploma or GED. He works at the Dominick’s supermarket on Cermak Street and earns an annual AGI of $16,500 (full time at $8.00 per hour). His partner Paul, who met him at Dominick’s late one night and eventually fell for him, is a thirty-something UIC alumnus who lives near the Loop and makes $65,000 per year.

José would end up owing $2,114 in taxes on his income, and Paul $12,921, for a total tax burden of $15,035 for the couple. By comparison, a heterosexual married couple with an AGI of $81,500 (the sum of José’s and Paul’s incomes) would pay only $13,711 in taxes. This means that José and Paul are being penalized $1,324, or 9.7%, by the federal government for no other reason than the fact that they are gay.

Scenario #4. Joshua is a junior at the University of Texas who works part-time to supplement the student loans he is taking; he earns $14,500 per year, most of that during the summer. His “fundamentalist ‘Christian’” parents threw him out of the house and cut off financial support when he came out to them, and he is just barely managing to support himself between the loans and the part-time work. His partner Andrew suffered the same fate when he came out to his Mormon parents, but fortunately, Andrew is a talented athlete who has a full-ride scholarship to play football for the Longhorns. This means all of his costs of attending UT are covered, but there are strict NCAA limits on what Andrew can do financially off the field; as a result, he does not work a compensated job.

For tax purposes, Joshua and Andrew are independent adults who cannot be claimed on their parents’ tax returns. On their combined income of $14,500, Joshua owes $1,814 in taxes; a heterosexual married couple that had an AGI that low would only pay $1,453. This $361, or 24.8%, difference would easily cover a month’s worth of Joshua and Andrew’s basic expenses like food and supplies, if the federal government weren’t penalizing them that amount for being gay.

As poor as they are, Joshua and Andrew can hardly afford the extra $361 worth of financial gay-bashing the federal government imposes on them. This is yet another example that demonstrates the need for tax reforms that give committed same-sex couples the same tax advantages as heterosexual married couples. This need not necessarily involve full federal recognition of same-sex marriage, but it will require some mechanism by which gay couples can register and prove their commitment, whatever form that might take.

Unfair tax treatment of committed same-sex couples is hardly limited to the realm of income taxes; the federal estate and gift taxes hit many older same-sex couples especially hard. Whereas the surviving spouse in a heterosexual marriage is not liable for estate tax upon the death of the other spouse, the surviving partner from a same-sex relationship is hit with the full fury of the tax, because the so-called “marital deduction” is denied to surviving same-sex partners. If a same-sex couple held an estate worth more than $1,500,000, the surviving partner will be subject to a tax of 47% on the estate — meaning that he/she will likely be forced out of the home he/she may have lived in for decades! This is an even more heinous attack on vulnerable older gay people, and it must be ended NOW. (Note: The $1,500,000 exemption and 47% tax rate were applicable in 2005, at the original writing of this essay. For 2008, the exemption is $2,000,000 and the tax rate is 45%.)

Additionally, the structure of the federal gift tax as it relates to marriage severely restricts the tax strategies of gay couples, particularly when only one of the two partners works. The language of the gift tax is so broad that, essentially, any amount of money the working partner spends to support the non-working partner (and possibly any children they have, as well) is considered a gift, and subject to taxation if the amount exceeds $11,000 per recipient per year (2005 figure; raised to $12,000 for 2008) and/or $1,000,000 to all recipients over one’s lifetime. Heterosexual couples enjoy an exemption under which gifts in any amount to each other are tax-free, but of course, gay couples are denied this special benefit. The lack of a same-sex-partner exemption to the gift tax bashes gays in at least two ways: first, it puts families with children at risk by practically forcing both partners to work, and second, like the estate tax, it stealthily attacks vulnerable, grieving older gays upon their partners’ deaths.

Such basic unfairness toward committed same-sex couples in our nation’s tax laws is unjust, unconstitutional (per the Fourteenth Amendment’s guarantee of equal protection of the law), and frankly un-American. All patriotic Americans must protest this injustice and urge their senators and representatives to correct it, so that committed same-sex couples no longer face discriminatory tax penalties for no other reason than merely being gay.

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