December 21, 2008

Death and Taxes

In this world nothing is certain but death and taxes.
—Benjamin Franklin

The deafening silence on this blog over the last month has been most unbearable, and for this reprehensible failure—one of many over the past month, rest assured—I sincerely apologize. Rather than dwell on the past, however, in this entry I look to the (equally dismal) future. In doing so, I hope to move closer to resolving a central paradox that has haunted this blog for much of its six-plus year existence, namely the constant assertion that love is futile while marriage is a value-maximizing transaction. How can one go without the other?

Cynics among the crowd may be inclined to scoff at this purported paradox. Of course marriage can be value maximizing while love is futile, they might be apt to argue, for the two are totally unrelated. To a certain extent, I would be inclined to agree. As my now paradigmatic criteria for marital bliss suggest, love is hardly required for a successful marriage—income and brand are all one needs. This eminent logic notwithstanding, I still believe that the resolution we seek is slightly more complex—it is not that love is irrelevant to a discussion of marriage, only that most people's definition of that word is severely misguided. This brings me to everyone's favorite topic, and certainly my own in the past few months: income tax.

Long ago, as a senior in college with the prospect of income on the horizon, I explored the tax benefits of both marriage and adoption. Alas, neither turned out to be workable solutions at the time (I was 21!), but what I then called a viable definition of love did emerge from that analysis: a person you like enough to have a couple tax-deductible dependents with. Voilà! The missing piece! Taxes.

If there is anything I learned this past quarter in law school (and it might very well be the only thing), it is that taxes have real-life implications on people's incentives in undertaking transactions. In other words, even if a person would be inclined to engage in a particular transaction, say marriage, in a world absent taxes, she might not do so if the tax implications render it to be a net negative venture. The result can be perverse—in that same example, the criteria of dual income and brand management may be met, and yet, the transaction would still be a loser due to taxes.

Indeed, given what little I understand of the tax code, that perverse result is precisely what is likely to occur when both couples earn roughly the same amount and are in high tax brackets in a phenomenon known as the marriage penalty. This awfulness runs squarely contrary to the criterion of dual income, and in fact, encourages large spousal income discrepancies to minimize taxes. Quite plainly, therefore, brand and income cannot be all that one looks to when one seeks to tie the noose; a consideration of tax postures is also necessary.

This is where love comes in. If we were to define love as any instance of dual income where the hated marriage penalty was counteracted by corresponding benefits (e.g., deductions for dependents, household economies of scale, half-rent, etc.) such that the transaction is still advisable, we need not decouple love from marriage. Indeed, love would be a prerequisite to marriage (much as it has always been in the eyes of idiots everywhere)!

For me (and I suspect, most of you), however, this presents a new problem. While income discrepancies in both directions will lead to a tax-favored situation—I mean, love—I am unwilling to accept an income discrepancy that leads me to have a significantly higher income than my spouse. (Talk about the definition of no-value-add!) Thus, it is with a heavy heart that I must announce that my criteria for marital bliss are no longer simply brand and dual income, but brand, love (i.e., tax-favored status) and GTE (greater-than-or-equal) dual income.

Conveniently, this now allows us to categorize all potential partners into three rather well-defined buckets:

Another variable to integrate in my distributed stable marriage algorithm, no doubt.