Tax Fairness for All (Straight People)

I’ve been involved with tax legislation for several years now, and I’ve never run into anyone – legislator, bureaucrat, business person, citizen – who’s said they want taxation to be unfair.

Nope, we all want our taxes to be fair. And although we can argue at the drop of a hat about what fairness actually means, there is one principle of fair taxation that everybody appears to agree on, and that’s that “similarly situated taxpayers should pay similar taxes.”

How somebody is “situated” here refers to their ability to pay taxes.  In the case of the income tax, ability to pay is mostly driven by income, but typically we take other things – number of dependents, mortgage and health care costs, age, disability, other taxes, work expenses and so forth – into account as well. And the fairness principle here is that if my wife and I look pretty much just like the neighbors in all these respects, we can and should pay pretty much the same taxes. And generally speaking, that’s what happens.

But now it turns out that in some instances, securing that kind of fairness apparently violates Montana’s constitution.

As Chuck Johnson reports, Department of Revenue Director Mike Kadas last week announced that Montana would not, could not, follow the lead of the Federal government and allow same sex couples, legally married in one of 14 states where that can happen, to file a married, joint return. The reason of course is that the Montana constitution says that same sex couples simply can’t be legally married here. And the legal staff in the Department of Revenue has concluded that if they can’t be married, they can’t file a married, joint return.

So let’s review. Two couples, one same sex and the other opposite sex, live next door to each other in a nice Montana town. Both were married in, say, Minnesota. They have the same income, the same mortgage payments and property taxes, the same number of kids, the same medical and business expenses, the same …well, you get the idea: the same everything relevant to their ability to pay taxes, including their marriage certificates. The opposite sex couple files a joint return, but the same sex couple can’t. They file separately and as a result between them pay more than their neighbors.*

Now to be clear: Director Kadas is a staunch proponent of tax fairness (to say nothing of basic human rights) and so far as I know is no happier than anyone else about being backed into this corner by the Montana constitution. And he did say that the Department of Revenue currently has no way of knowing whether any couple that files jointly really is legally married, and it’s not about to start trying to find that out.** That means, in effect, that same sex couples that decide to risk it (after all, they’re breaking the law!) can file jointly and probably won’t get caught. It sounds a lot like “don’t ask, don’t tell.” Fairness (sort of) by subterfuge.

Kadas suspects that some day he will be sued over this. And that’s almost certainly going to happen. The issue goes well beyond taxes.  Pretty soon we are going to realize that our constitution is forcing the state to discriminate against same sex married couples in hundreds of ways, and in the wake of the US Supreme Court’s Defense of Marriage Act ruling, and of so many states legalizing same sex marriage, it’s hard to see how such discrimination will not be struck down.

Of course, we could save ourselves a lot of legal grief and do the right thing by repealing Montana’s constitutional prohibition on same sex marriage. Wouldn't that make more sense? 

*Filing jointly doesn’t always lower a couple’s tax bill. In fact, it can raise it. The explanation for all this gets a little wonkish, but Dan Dobbs at the Department of Revenue, one of Montana’s best tax wonks, lays it all out in this 2009 report.

** There's a practical side to this policy. The Department of Revenue figures that verifying couples' marital status would cost more than any additional revenue they would receive as a result of making that effort.