Taxes and singledom

That was the theme for class today, and it was so much fun, I decided to blog it!

We started with the tax rate slabs in place as of date. These are progressive slabs, which means as much of your income as falls within a particular slab is taxed at the rate applicable to that slab.

For men:

  • Upto Rs. 1,00,000 – 0%
  • 1,00,001- 1, 50,000 – 10%
  • 1,50,001 – 2,50,000 – 20%
  • 2,50,001 above – 30%

For women:

  • Upto Rs. 1,35,000 – 0%
  • 1,35,000 – 1,50,000 – 10%
  • 1,50,000 – 2,50,000 – 20%
  • 2,50,000 above – 30%

Let’s take a man and a woman with equal incomes: Rs.5,00,000 each.

His tax:

  • Upto Rs. 1,00,000 – 0% = 0
  • 1,00,001- 1, 50,000 – 10% = 5,000
  • 1,50,001 – 2,50,000 – 20% = 20,000
  • 2,50,001 above – 30% = 75,000

A total tax amount of Rs. 1,00,000, which makes it an average rate of 20% on his total income.

Her tax:

  • Upto Rs. 1,35,000 – 0% = 0
  • 1,35,001- 1, 50,000 – 10% = 1,500
  • 1,50,001 – 2,50,000 – 20% = 20,000
  • 2,50,001 above – 30% = 75,000

A total tax payment of Rs. 96,500, which makes her average tax rate 19.3%. Because of the extra 35,000 that are exempt, of course.

Now, let us assume these two get married. An ideal marriage, an equal partnership where both have equal incomes and equal access to the household’s funds. The still get taxed as individuals, at the same rate, so they pay Rs.1,00,000 + Rs.96,500 = Rs.1,96,500 out of their total income of Rs.10,00,000. That’s 19.65%. So, the average tax rate has gone down for him and up for her. That’s what we call a tax disincentive. For the woman, that is!

Now let’s take a second scenario. Two women are trying to decide whether they should take this job which pays Rs.5,00,000 a year; one’s single and one’s married to someone who’s already earning Rs.5,00,000.

As we saw above, the single woman is going to end up paying tax at an average rate of 19.3%, the married woman at an average rate of 19.65%. As if all that work at home weren’t enough of a disincentive to take the job, she pays tax at a higher average rate than her single counterpart!

We could keep doing scenarios: woman earning less than partner at time of marriage, now has chance to earn more; woman earning more, what does marriage do to her tax liability? And we did end up doing them – some in class, all together; and from recent evidence, some in other classes, by ourselves.

What fun to do this in a class as responsive as this one!

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10 Responses

  1. I do not understand one thing…. Why are you assuming that the taxes that any household pays is shared equally by all members of that household?

    Taxes are paid by individuals, not households. So why does the married woman in the 2nd scenario take home less then her single counterpart? Both take home the exact amount, after paying the taxes.

  2. As I said, assume the ideal ‘equal’ marriage: both have equal incomes and equal access to the household’s income! And in the second scenario, ‘take home’ just refers to the post-tax income. I’ll clarify that.

  3. Patriarch(P)/Matriarch(M): You know dear, you’re nearly twenty four now, and you’ve got a nice job. Don’t you think its time we started looking for someone for you?

    Sweet little darling(SWD): No, I don’t think so. Marriage is a serious disincentive for me.

    P: My dear M, what language is this? What is SWD saying?

    M: She’s saying she doesn’t want to get married, my dear P.

    P: Huh? Why?

    SWD: I learnt it in law school, P.

    P: law school? LAW SCHOOL?????? I told you M. A long time ago. It was a bad idea, we should have sent her to do engineering. Now look whats happened!

    M: Calm down P.

    P: calm down? CALM DOWN? My SWD wants to remain a spin-whatchamacallit and you expect me to calm down. Just you wait and see.

    (stomps around in an uncontrollable rage)

    P(to SWD): who told you these things? Who?

    M: That tax teacher of theirs. She fills these kids with all kinds of ideas, I don’t know what to say to them!

    P: Well, we shall see about that!

    (Exit stage right in a huff, to look for Trishul and battle-lungi.)

  4. Interesting post.

    I want to continue T. R. J Nair’s post [clearly i’m not writing for Mr. Nair and i dont know if my post would reflect his thoughts]

    Next Scene.

    P comes back on the stage, though without the battle-lungi, but has been successful in finding the Trishul. Walks upto the SWD.

    P: “You are brave and I respect your decision and hold this and use this carefully, because there are fights that have to be fought and battles to be planned and wars to see.”

    SWD:” I was talking about tax disincentive, i cant take that, because i fight my battle through words”

    P to M: “Maybe, after all it wasn’t a mistake, to send SWD to the Law school, looks like, she already know what she wants to do and how.”

    ——————————————-
    Also in the American Context, Lily Kahng’s “Innocent Spouses: A Critique of the new tax laws” a 2004 Villanova law review throw up some interesting arguments on the present post. worth a read.

  5. Tax law in all its majesty is promoting lesbianism.

  6. Mr. Nair: tee hee

    Xenon: Thank you!

    Tom: So?

  7. @ Tom, does it actually promote lesbianism ? I though it limited itself to being ‘single’ and when does being single automatically push one to the homosexual side ?
    And is Erimentha agreeing to Tom’s proposition ? that in “in all its majesty is promoting lesbianism.” If this is so, then i think we have also discovered a solution to India’s population crisis.

    Though I think considering only tax benefits as a condition for marriage is probably unlikely, but in a hypothetical situation, it does act as a disincentive. Though sometimes the difference is negligible.

  8. Xenon, I think you’re taking me (and Tom) a little too seriously.

    That said, I think the figures would also show that a household with two earning women would have the least average tax rate, and hence Tom’s comment.

    Of course, that’s assuming Tom bothered to do the math; it’s more likely he thought he was being clever.

  9. MMMm…. whoever wrote tax law was one helluva big perv. Designed to be easier to comprehend for men. as Nita would agree.

  10. Tom, perv? How easier to comprehend for men? Who’s Nita? You’re drunk!

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