Tuesday, October 21, 2008

Family First claims being married has an annual "marriage penalty tax" of up to $15,000

A married couple both working and on low incomes or a family with one earner are being penalised up to $15,000 a year in household income compared with a couple who separates. Furthermore, according to Family First, low income families are being hardest hit by NZ’s ‘marriage penalty tax’.

In many cases this is complete bollocks.

Here's how it works: You go to this calculator, punch in your marital status, income, number of kids, accommodation and hours worked, and "bingo", you find out how much better off you are if you split up.

So I gave it a try. We`re a low income family so we would be hardest hit, apparently. Guess what - we`re better off together! Now that wasn't supposed to happen. Even if we both earned $50,000 and paid $350 a week in mortgage payments we`d be better off together. So why this:
For a married couple who are both working and receiving low incomes (for example $40,000 each) and have 3 children, their joint income is $14,715 lower than if they were separated or divorced because of the interaction of family income assistance programmes such as the Working for Families Tax Credit and the Accommodation Supplement.
So why are we better off if low income families are being hardest hit by this "marriage penalty tax?" Simple: We don't have three kids or a $400 mortgage and our accommodation costs are not likely to be $500-600 a week if we were to split.

For low income families, its not a marriage penalty tax at all - it's an accommodation and baby penalty tax because the same family on $40,000 each with a mortgage lower than $400 per week (say, $230) will be better off married with two kids, but better off single with three.

Take another example, a childless family where one partner earns $50,000 and the other earns $30,000 is $5,800 better off married. Have a child and you`re $4000 better off single. Find a cheaper place for $220 a week and you`re better off married. But have another child and you're $3000 better off single. Sounds like a hypothetical "baby penalty tax" to me - nothing to do with marriage - or cohabitation - at all.Actually it's not even that, its how redistribution works - you get more if you are in a lower salary and even more if your oists are high.So higher proportion is removed if you get a pay increase or have less costs on a low salary. It's income, not marital status, that is the key variable.




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