The gay tax

Tim Mooney

My brother just moved in with his girlfriend, a student at a culinary academy.  The state they live in allows my brother to add his girlfriend to his health insurance as a cohabiting dependent, which is really good because the company he works for has great benefits and her lousy insurance costs a fortune.  Now, there's a big drawback... since they are not married, the health insurance benefits that are paid for her to my brother are considered his taxable income.  Essentially, he's gonna get dinged on his paycheck.  The good news is that there's a solution... that extra withholding for that (her insurance benefits) is magically erased if they decide to get married, because tax law allows for tax free benefits to married couples.

So, the vast majority of gay couples in the same situation as my brother and his lovely girlfriend do not have this option, beacuse (this just in)... they can't get married in 49 of 50 states.  This is not a hypothetical example... take a look at this Washington Post articleBasically, it's a gay tax.  Now, I'm not inherently opposed to taxation, but it should be fairly implemented.  The gay tax is not.

My brother and his girlfriend can choose to avoid this... they can get married.  Since it's a choice that is available to them (unlike gay couples), I'm not up in arms over the  higher taxes he will pay.  This, despite the fact that my brother's lower paycheck will probably translate into a much lousier birthday gift for me.  Did I think that or type that?

This brings us back to Oregon's continuing debate over SB1000.  If passed, the state would grant rights within a civil union to same-sex couples that are similar to marriage.  I'm skeptical whether the grant of civil union rights would solve the federal tax law problem I've described (state vs. federal law).  However, if the IRS does consider civil unions the same as marriage in this context, chalk it up as yet another reason for Oregonians to support SB1000.  In the interim, I'm just happy to join the ranks of anti-tax crusaders... down with the gay tax!

  • iggi (unverified)

    "I'm just happy to join the ranks of anti-tax crusaders... down with the gay tax!"

    lol, that's good.

    i, on the other hand, as a single male who never plans on getting married, am getting completely screwed by the State and Fed. no tax breaks for me -- no dependants, no spouse, no "head of household" withholding. and, i might add, guys and gals like me are the ones that should get all the breaks. we keep this countries restaurants and single's bars afloat with our massive disposable income. that and we're helping to keep the planet green by keeping the breeding levels down. i want some stinkin' tax breaks too.

    down with the single persons tax!

  • Sally (unverified)

    There's a difference, iggi, between never planning on getting married, and planning never to get married. Don't say I didn't warn you. :=)

    I could swallow special exemptions for people with children. I could swallow that easily. Elsewise, the different tax rates for married and single are cruel and there is almost no recognition of it, one of my pet whines for just about ever.

  • Dinah (unverified)

    this 'extra-income' tax that you are referring to is something the gay community has known, dealt with and paid since "partner benefits" were introduced - (one more on the list of double standards).

    if more members of the straight community are understanding (and paying for) the differences, maybe more of the frustration from the gay community will be understood.

  • David Wright (unverified)

    Iggi, I could'a written the same thing myself... except that I wouldn't go so far as to claim tax breaks for single folk like you and me.

    I'd like to add the deductions for mortgage interest to my "hit list" as well. It's so nice that as a renter I get to subsidize the housing costs of my neighbors who have $200K+ homes. Woo-hoo...

    I'm not keen on tax breaks due to lifestyle choices generally. That includes deductions for children. I know that kids cost money, but as with anything else -- if you can't afford them, don't have them. In any event, don't expect me to pay for your choices, is I guess the bottom line.

    Tim: I believe the Defense of Marriage Act expressly forbids the federal government (including the IRS) to treat same-sex couples as married for the purposes of federal law. So no, civil unions in Oregon would not, as I understand it, confer the equivalent federal tax status as marriage.

  • David Wright (unverified)

    By the way, there are several goofy cases of "taxable benefits" which make no sense to me. For example, my employer provides a life insurance benefit, automatically, for all full-time employees. For some reason (I'm still not entirely clear why) the value of this life insurance benefit is considered to be in excess of IRS standards -- I believe it's something to do with the premiums the company pays being lower than average for the coverage. So, on my paycheck is a line for "excess life insurance" and the difference between the actual premium paid, and the "standard" premium paid, is counted as a taxable benefit to me. I actually pay taxes on the few dollars per check difference in premiums for coverage that is of no benefit to me at all (since I'd have to be dead to collect, after all...)

    This despite the fact that, as a single person with no dependents, I have absolutely no need for life insurance in the first place. And what kind of nonsense is it to penalize people because their company got a good price on something? I'm not being taxed on the value of the premium paid on my behalf, mind you... which would also be stupid but at least understandable. I'm being taxed because my employer isn't paying enough on my behalf. WTF???

    In short, the tax code just sucks.   ;-)

  • (Show?)

    There's only one reason to deny gay couples the benefits afforded to hetero couples: bigotry. If people are going to stand in the way of SB1000, let them doing it standing on their actual reason. Otherwise, let's pass the law quickly.

  • Bert Lowry (unverified)

    Senator Ted Ferrioli, the Senate Republican Leader, sent me an email that said:

    I am more inclined to support a reciprocal rights approach which makes no reference to sexual preference and which will allow people in many circumstances to create a legally binding relationship.

    On the whole, this seems like a pretty good idea. I don't know where he stands on SB1000, though I assume he opposes it. But it sounds like, if push comes to shove, a compromise bill that provides what I want (equal rights for all Oregonians) could be arranged.

    He might have some pull with Minnis, too.

  • (Show?)

    David - I think it's a combo of the fed DOMA and current IRS regulations that give us the gay tax. This gets me to an egghead tax lawyer thing for a moment, so I hope folks will endulge my geek behavior here:

    Getting a case heard before a court is hard in instances where there is an equal protection claim... but it might be easier using this inequity as the basis. In tax law, the easiest way to challenge the IRS in court is to pay your taxes then sue for a refund. So, a gay couple that is in a recognized civil union could file a lawsuit asking for a tax refund for the "gay tax" on the one partner's income that would not be taxed in a (straight) marriage. The constitutionality of the fed DOMA and the IRS rules could then be exposed to judicial review. Wish it were as simple as that sounded, but it's certainly an avenue...

  • Sally (unverified)

    It's not a gay tax. It's a cohabitation tax. Get together with other cohabiters of whatever genders and persuasions and argue against the pro-marriage "bigotry:" ie, tax break.

    These new language and thought patterns don't just sweep in like a sandstorm; they get a bit carried away with themselves in their rage.

    In my view.

  • David Wright (unverified)

    It's not a gay tax. It's a cohabitation tax.

    Sally, you're exactly right -- excellent point!

  • JS (unverified)

    Speaking of bigotry, here's some apparent hypocrisy, and possibly criminal activity to boot...

    Wash. Mayor Denies Molesting Boys in '70s Spokane, Wash., Mayor Denies He Molested Boys in 1970s; Newspaper Details Accusations By NICHOLAS K. GERANIOS Associated Press Writer The Associated Press

    May. 5, 2005 - Two men have accused Mayor James E. West of molesting them when they were boys and he was a sheriff's deputy and Boy Scout leader, The Spokesman-Review reported Thursday.

    West, 54, a conservative Republican leader of the state Senate before he was elected mayor in 2003, denied ever having had sex with children and vowed Thursday that he would serve out his four-year term.

  • Eric Miller (unverified)

    On the suggestion to ban the mortgage deduction because renters effectively subsidize it: seems like the opposite is true.

    I'm not a tax lawyer or accountant, but my understanding is that the mortgage deduction is claimed by the landlord, driving down the total expense for the property (and therefore, in theory, rents). Landlords also can claim additional rental business-related deductions that owner-occupiers cannot.

    I agree that the tax code isn't the best place for social policy, but owner-occupied homes are clearly a good thing for communities. Encouraging that isn't a bad thing.

  • David Wright (unverified)


    Here's an example of what I'm talking about. Let's say that me and my identical twin brother, who are in all other ways exactly the same (same income, same deductions, etc.) are filing our taxes. But I rent, and my brother happens to own his own home.

    My brother gets to claim say (for example) an $8000 deduction on his taxes for mortgage interest, which I do not. This means that at our 25% marginal federal tax rate, my brother pays $2000 less in federal taxes than I do.

    That's more money in his pocket simply because he owns a house, but beyond that it means that for any given federal expenditure, I'm picking up part of his share. He's paying less into the system than I am, and in that way he is effectively subsidized by me. It is essentially a transfer of money from me to my brother.

    It would be sort of like if we went to a restaurant, ordered exactly the same thing, and the total bill comes to $100. But instead of splitting the bill 50/50, my brother only has to pay $45, leaving me to pay $55. I might as well have handed my brother $5 in addition to paying my $50 portion of the tab.

    Now, I agree that owner-occupied homes are good for communities. I'm not opposed to encouraging home ownership at all.

    I'm opposed to taking more money from those who don't own homes, to cover the taxes not paid by those who do own homes.

    And for that matter, I'm opposed to taking more money from people who own less expensive homes, and using it to cover the taxes not paid by people who own more expensive homes. Consider two people who both own houses, but one pays twice as much in mortgage interest as the other. The one who pays twice as much in interest gets twice as much of an interest deduction, which results in at least twice as much tax savings (if the other guy was able to afford a house that was twice as expensive, there's a good chance he's in a higher tax bracket and thus his marginal rate would be higher). In that way, people who make more money can end up paying a much smaller percentage of their income in taxes. Talk about a regressive tax system!

    If you want to encourage home ownership, heck, set up a direct subsidy payment on home loans. Fine by me. As long as both me and my twin brother pay the same amount into the system, then how those funds get spent is a separate matter.

    Same with dependent credits. Those who have children pay less tax, so those without children have to pick up the slack.

    Whatever you want to spend money on by giving a break to some people but not all people, move it from a tax deduction to a subsidy expense in the budget. See "Who's afraid of revenue?" for information about tax expenditures. Many of those breaks (again, the conditional and not global kind) should be turned into direct expenditures in my opinion. Make it part of the budget, allow people to see the numbers, and debate whether we really want to spend that much money giving it away to the various special interest groups.

  • Gonzo Journalist (unverified)

    What about the 80 year old widows that find solace in cohabitation? Shouldn't they be entitled to tax breaks and next of kin hospital rights?

    How about a couple of divorced men that lose their real estate assets and move in together to reduce expenses. Imagine if one of them loses his job: they shouldn't have to play who dropped the soap to double up on the other's health insurance?

    Please don't discriminate against cohabitating asexual couples: we're frustrated enough as it is.

    Why should an economic union be less worthy of societal endorsement than a sexual relationship? STOP DISCRIMINATING AGAINST THE ASEXUALLY UNITED.

  • K. Sudbeck (unverified)

    A flat consumption tax would solve all your problems, regardless of race, color or creed.

  • (Show?)

    There are many embedded assumptions and societal goals embodied in the tax code. It is far too simple to cry "bigotry" or discrimination without parsing out why the credits are allocated the way they are, and what the consequences are of changing them.

    Let's start with the dependent credit. David writes: Same with dependent credits. Those who have children pay less tax, so those without children have to pick up the slack. Now that's not exactly right.

    The embedded assumption is that dependents are consuming part of the family income--children aren't free after all--so that the taxable income is reduced accordingly. The embedded societal goal is to encourage childrearing, or otherwise allocate taxes so that those with more disposable income pay proportionally more in taxes.

    What are the consequences of changing this? It would mean that a childless couple earning $50,000 pays the same tax as a couple with 1, 2, or more children earning $50,000.

    Let's look at the "gay tax" that motivated this posting. The embedded assumption is that society has an interest in fostering long term, stable relationships. There is good evidence that these are good for society: married couples are less likely to split up, children raised in stable, two parent settings are better adjusted, etc.

    The consequences of changing this would be that anyone stating that they are cohabiting receives the same tax benefits as someone who commits to a civil union or marriage.

    I'm not sure we want to go here -- France is already experimenting with this and all reports that I've seen are that the consequences are not good. We'd have constant claims of "cohabitaion" from all kinds of folks who realize the tax benefits of the claim.

    Please note this is not a rant against same sex couples or marriage. I opposed Measure 36 and support SB1000.

    However, I can justify a set of tax benefits limited only to those that commit, legally, to a civil union or marriage (with all the attendant legal obligations that come with it) and not to those who simply claim they are cohabiting.

    On single/married taxes (mentioned by iggi). You have to make a choice. If you have a couple living together, each of whom earn $25,000, for a total income of $50,000, the question is whether they should pay more, less, or the same tax as two single people earning $25,000 apiece or one single person earning 50,000. If they pay the same (or more), this is the "marriage penalty." If they pay less, this is the "single person penalty."

    Think about this before you quickly say 'the same.' A couple living together presumably saves money on many things--one fridge, one oven etc. So the couple should pay more than the two single people. However, the single person earning $50,000 ought to pay more than the couple.

    What is the fairest way to arrange this?

  • PDX voter (unverified)

    ...deductions for children. I know that kids cost money, but as with anything else -- if you can't afford them, don't have them.

    Well, wait a minute. My kids are the ones whose labor will support the economy during your retirement years. My kids are the ones who will be paying into your social security check some day.

  • Eric Miller (unverified)

    Hi David, thanks for the thoughtful response. The one problem with your argument is that it assumes that a rental dollar and a mortgage dollar are equal. They aren't. The rental dollar goes farther. $1000 a month will rent a decent house in Portland. $1000 a month might cover the mortgage on a lesser house, all other things being equal. That's why (anecdotally) twentysomethings can afford to rent a cool house off Clinton St but need to buy in Lents.

    So if you're spending the same amount of money per month, the renter doesn't subsidize the owner; the renter is getting more house for the money. The apples-to-apples comparison is comparing the expense of equivalent housing, where it's cheaper for the renter. I still don't see that renting subsidizes ownership.

    There's a similar issue with the mortgage interest deduction issue mentioned; if you're paying twice the mortgage interest, you're out 2x the money. It's not a credit, it's a deduction; your out-of-pocket savings are limited to your bracket's percentage of the deduction off your taxable income, so the person with lower mortgage interest keeps more money in the end. Again, I'm not an accountant, but our accountant always tells us that 'spend less money' is infinitely better than 'claim that deduction'.

    With all that said...yes, the current system isn't particularly fair at the checkbook level, especially to gay childless couples. What also hasn't been mentioned much here is the net outflow from 'blue' (read: gay-friendly) states to 'red' states at the Federal tax level, or all the intangible benefits that a vibrant gay community brings (e.g. Richard Florida's Creative Class thesis)

    But I'm still not sure at all if individual fairness can really translate into a just tax code. In the end we may just have to accept that it may not always be fair, but we as a society can at least strive to make it just.

  • (Show?)

    Not a fan of the flat tax personally... yes, it would solve the instant issue, but it would also subject poor people to a regressive tax that hits them harder than the middle and upper class. It's probably the chief reason why the sales tax (a flat consumption tax) faces so much opposition in Oregon.

  • David Wright (unverified)

    Eric, sorry I think I was not clear earlier when I made the somewhat flippant remark that renters were subsidizing the housing costs of owners. I didn't mean to get sidetracked on the issue of actual housing costs.

    My subsequent remarks were intended to clarify that I was talking about the tax burden being subsidized, i.e., when the owner pays less in federal tax, the renter must pay relatively more in federal tax to make up the difference. Since the tax break was related to housing, I referred to this as a housing cost subsidy, but it's really a tax subsidy.

    In other words, if the federal government had expenses of $2000 total, and they had 2 citizens with equal gross incomes to tax, then normally they'd each have to pay $1000 to cover tax expenses. But if one is a home owner and is given an income deduction so that effectively he only has to pay $800 in taxes, the government has to get $1200 from the renter to pay the bills. So the owner knocked off $200 and the renter added $200.

    Now, of course it's not literally true that when calculating my taxes, there's an additional penalty for being a renter to offset your deduction for being an owner. But the practical effect is the same. In the example scenario, it would be more fair to say that we'd each normally have to pay $1200, but the owner ended up knocking $400 off his taxes and the renter did not. And since (in this enormously simplified example) the renter has contributed 60% of the government's funds, the renter is paying 60% of the cost of government, while the owner is only paying 40%. Defense, education, etc. -- all get paid more by the renter than the owner.

    Now, an alternative approach that would be more balanced, would be to go ahead and collect the $1200 from both parties (eliminate the mortgage deduction), for a total of $2400. Then cut a check for $400 to the home owner (in the form of a mortgage direct subsidy). Government still has $2000 left over, just as before, to pay for everything else -- contributed in equal measure by both the owner and the renter.

    In that case, the home owner still nets $800 to the government ($1200 in and $400 back). But that $400 check was one of the direct costs of government, and the owner himself contributed 50% of the cost of that subsidy, just as the owner and renter split all costs of government 50/50 -- defense, education, and so forth.

    Again, same thing goes for two owners who have different amounts of mortgage interest to deduct. Yes, the person with more interest would still get a larger subsidy check, but they would also have contributed equally to the cost of that subsidy, rather than shifting the cost of the subsidy onto those who don't qualify for it.

    The ultimate point being, it doesn't matter in the slightest to me what you spend your net income on or whether the value of your owned house is better or worse than the value of my rental apartment. If I have to contribute more to the total cost of government than someone else in a similar situation and similar income, that blows. And we can still hand out specialized subsidies (same thing goes for dependent children, for example) all you want, as long as people making the same amount of income contribute equally to those subsidies.

  • David Wright (unverified)

    PDX Voter:

    My kids are the ones who will be paying into your social security check some day.

    True enough.

    They'll also be paying into YOUR social security check.

    So as far as that goes, you and I will benefit equally from that. Why should I pay more for the privilege?

  • (Show?)

    What about the 80 year old widows that find solace in cohabitation? Shouldn't they be entitled to tax breaks and next of kin hospital rights?

    This reminded me of a whole 'nother ball of wax. If you flip that and have an 80 year old widow and widower living together, it becomes a really big mess. Why? Because most of the time they CAN'T get married. Generally speaking, one or both could sacrifice social security and retiree benefits if the benefits were carried under the deceased spouse. So if they want to get married, they lose all or part of their income and benefits.

    See, now we're talking about a situation where the tax/social security/health care/corporate world actually PREVENTS people from getting married. They're makin' 'em live in sin! ;-) It's ridiculous really.

    I met with a woman recently whose first husband died 20 years ago. She's since remarried. Her second husband is younger than she is and won't be of retirement age for a couple years. Until then, because she's never technically worked otuside of the home (she's always helped in family based businesses) and does not have her 40 quarters on her own, her benefits are almost non-existant until her hsuband turns 65. Which would be understandable consdering the line of the law has to be drawn somewhere... but if she divorces husband number 2, she reverts back to her widow status, and her social security would more than double and she would qualify for Medicare part A now instead of 2 years from now. Twisted, ain't it? She's decided to take the financial hit and stay married. ;-)

    <h2>The whole system's screwed up.</h2>

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