Marriage and the tax system


According to The Times' Rachel Sylvester, David Cameron, the Leader of the Opposition, and George Osborne, his shadow chancellor, fundamentally disagree over one aspect of policy – the Tories' promise to recognise marriage in the tax system.

Put simply, Cameron wants the tax system to reward people for getting married (or entering into a civil partnership), probably through the return of the married couples tax allowance. Essentially that would mean spouses could combine their personal allowances for tax purposes. This is an example of the 'nudge' economics that everyone's talking about: government believes marriage is a good thing, so they create a stronger incentive towards it.

Osborne's position is different, Sylvester says: "For him, it is not the State's job to tell people how to live their lives. He would prefer to use scarce Treasury resources to support parents, whatever family structure they are in, than to reward a childless millionaire hedge fund manager who happens to be married to a lady who likes to lunch." My guess is that he would prefer to adopt something like the proposal in Lord Forsyth's Tax Reform Commission report to "introduce a transferable allowance for couples with a child aged five or under".

Libertarians might take a third position, saying the tax system ought to be completely neutral and non-discriminatory. Each individual should be assessed in precisely the same way, without complex credits and allowances designed to reward some taxpayers at the expense of others. Single, childless people might argue that they already do enough to support families (their taxes pay for schools and healthcare, and so on) and would rather not foot yet more of the bill.

It's a tricky area, and one fraught with political pitfalls. Personally, I'd like to replace our whole tax code with a simple, individually assessed flat tax, with a high personal allowance and no added complexities. Failing that though, I would I would prefer Osborne's position to Cameron's, and either of them to the status quo, with its perverse incentives that penalize committed relationships and actually encourage family breakdown.