This pattern of subsidies and penalties is the natural outcome of a tax system that is both progressive and based on family rather than individual income. The new child credit enacted in 1997 will reduce marriage penalties, but if the number of two-earner couples continues to grow, more couples will face penalties in the future. Higher-income couples receive most of the subsidies and pay most of the penalties. These couples pay a disproportionate share of penalties because they are more likely than lower-income couples to have a penalty, and their average penalties are higher. Marriage penalties and subsidies vary depending on how the couple s income is divided between the husband and wife.
Several factors contribute to subsidies and penalties at the income levels shown here.
The interaction of these various factors explains the pattern of subsidies and penalties in table 1 . As seen by the substantial marriage bonuses in the first column, single men marrying nonworking women with children gain from their wives unused tax benefits, garnering marriage subsidies ranging from about 9 percent to over 40 percent, depending on income. Alternative assumptions about family characteristics and tax filing status in the absence of marriage would yield different results. Doing so would significantly lower subsidy and penalty estimates at these levels. Any remaining EITC is then paid to the family.