While many are praising the modern woman’s successes at juggling work and family life, current tax biases may cause a woman to think twice before she takes on both work and marriage.

A single working woman could pay more in federal income taxes if she marries. That’s because the current tax code—originally designed for one-income couples—taxes two-income couples at a higher rate than if the couple had filed as singles. Consider an unmarried couple, Bob and Jane, in which each person earns $30,000 per year. Filing separately, each person would pay $3,442.50 in federal income taxes, for a total of $6,885.

But if Bob and Jane marry, the couple’s tax liability increases to $7,648. That means a marriage penalty of $763 per year. The reason: As singles, Bob and Jane each pay 15% tax on the $30,000 incomes. When they marry, the couple has a combined income of $60,000, propelling them into the 28 percent tax bracket. Faced with high tax penalties when they marry, working women may decide to forgo marriage in favor of cohabitation.

According to a recent Rutgers University study, the annual number of marriages declined by almost 43 percent between 1960 and 1996. Cohabitation—or "informal marriage"—has sprung up in its place. Between 1960 and 1998, the number of cohabitating couples rose 1000 percent. The high number of cohabitating couples with children seems to indicate that these unions are more than temporary.

A University of Wisconsin-Madison study reports that about 41 percent of the births to unmarried mothers from 1990 to 1994 were to women who were currently cohabitating. Many factors may contribute to this change in lifestyle, but the marriage penalty could be one of them.

The tax code could also influence a married woman’s decision of whether to enter the labor force. Under the current tax code, a married woman who works will pay federal income taxes at a higher rate than her husband.

Here’s how it works: Let’s take a one-earner couple, Ralph and Sue. Ralph earns $40,000 per year, and Sue is a homemaker with no taxable income. The couple falls into the 15 percent tax bracket and pays $4,095 in taxes.

If Sue enters the labor force earning $25,000, her income would be stacked on top of her husband’s income and taxed at a higher rate. Whereas Ralph pays no federal income taxes on the first dollar he makes and 15 cents on his last dollar, Sue will pay 15 cents on her first dollar and 28 cents on her last.

If Sue is considering taking a job because she and Ralph desperately need a second income, then the tax liability she faces may not discourage her from working. But if Sue is going to work to earn spending money, she may reconsider when she realizes that her federal income tax rate will rise 11 percent if she takes a job.

As a married working wife, Sue will pay $4,953 in federal income taxes. But if Sue were unmarried and earning $25,000 per year, she would pay $2,693 in federal income taxes. That’s a marriage penalty of $2,260.

Several studies confirm that married women—especially those in high-income families—are much less likely to enter the work force when the tax rates are unfavorable. And a married woman who decides against working because of the high taxes she will pay will lose more than a little spending money.

A stay-at-home wife taking a first job could gain satisfaction and reassurance in knowing that she can generate income, if need be. Soaring divorce rates, the difference in average life span between women and men and a Social Security system that throws every fifth woman into poverty mean that many women will have to work at some point in their lives to make ends meet.

One way to reduce the inequities that two-income married couples face under the tax code is to give couples the option of filing as singles. Under single filing, a married working woman will face the same tax rate as her husband, and the marriage penalty will disappear for two-income couples.

As the debate over taxes continues, lawmakers should consider eliminating the inequities women face under the tax code so that women will have the freedom to make their own decisions about work and marriage, rather than having the tax code make decisions for them.

—Helen Chaney

Helen Chaney is a research intern at the Pacific Research Institute’s Center for Enterprise and Opportunity.