Here are the MFJ brackets for that year (there are actually many more brackets, approximately 25 in all; the missing ones are interspersed between these break points):
$0 - $4,000 20% $6,000 - $8,000 22% $16,000 - $18,000 34% $38,000 - $44,000 56% $70,000 - $80,000 69% $100,000 - $150,000 75% $400,000 - 91% |
Too steep? OK, let’s index these rates for inflation since 1954. Roughly speaking, the consumer price index (1982 = 100) was 25 in 1954, and is about 200 today, so prices have increased eight-fold in the past 55 years. So let’s leave the rates the same, and multiply the brackets by 8. For simplicity, let’s say the rate shown begins to apply when income reaches the amount indicated:
Income Marginal Rate
$32,000 20%
$64,000 22%
$144,000 34%
$352,000 56%
$640,000 69%
$1,200,000 75%
$3,200,000 91%
Let’s compare these rates with those actually in place in 2010:
Income Range 2010 Indexed 1954
Marginal Rate Marginal Rate
$0 - $16,750 10% 0%
$16,750 - $32,000 15% 0%
$32,000 - $64,000 15% 20%
$64,000 - $68,000 15% 22%
$68,000 - $137,300 25% 22%
$137,300 - $144,000 28% 22%
$144,000 - $209,250 28% 34%
$209,250 - $352,000 33% 34%
$352,000 - $373,650 33% 56%
$373,650 - $640,000 35% 56%
$640,000 - $1,200,000 35% 69%
$1,200,000 - $3,200,000 35% 75%
$3,200,000 - 35% 91%
Notice that people in the lowest brackets would see their tax rates vanish. From a public policy standpoint this is probably undesirable; so let’s insert a 5% and a 10% bracket at these low levels of income. Let’s also provide a personal exemption of, say, $10,000 for the first two people listed on a return –husband and wife, husband and husband, whatever—and reduce it to $5,000 for all dependents after that. That way, a family of 4 with an income of $32,000 would pay a 10% tax on the last $2,000. Nominal, sure; but it forces them to pay attention. And we should all be taxpayers, even if nominally so.
And let’s not be accused of being punitive on the middle class: keep the rates where they are now, up to an income of $144,000; and split the difference for the next bracket. Say, a 30% rate for incomes between $144,000 and $209,250.
It’s only when you get above $350,000 that taxes really start taking off. This is the area where, over the past 50 years, the brackets have simply disappeared. That is, those at the top are currently being taxed at rates far, far below what they would be had the 1954 rates been left in place and only adjusted for inflation. In other words, someone who earns $1 million today pays only 35% on his next dollar of income; had the tax rate schedule been maintained at historical levels he would be paying more than double that –75%.
Even in 1980, there was a 70% bracket, applicable to dividends, interest, and other unearned income; capital gains were taxed at 35%, and earnings at 50%. Note that these are the top rates in each case. Few people actually paid them; but the rates were there for the very wealthy.
No wonder the rich get richer, now more than at any time since the Gilded Age. And if you consider individual cases, why does it make sense that a physician, who earns a handsome but not egregious $300,000 per year, should pay the same rate on his next dollar of earnings as the CEO of a Fortune 100 company who makes $10 million?
Our tax structure has lost what is probably the most important feature of a voluntary system, namely equity. It is simply unfair, as it stands today. That lack of basic fairness has been obfuscated as we have had hammered into us all the notion that “taxes” are too high, by those at the top who have reaped substantially all the benefits of the tax restructuring of the past generation, and suffered essentially none of the ill effects of the tightening of the safety net and the rape of the economy by the economic elite (with the active collusion of the Congress).
Let’s get concrete. Say I’m a surgeon with a prospering practice, and my taxable income is $750,000 per year after all exemptions and deductions. What do I pay today, and what would I pay under this proposed alternative?
The 2011 tax rates compute a tax for our surgeon (assuming a joint return) of $232,808. Under the proposed scheme above, he would pay $331,900, an increase of $100,000. This is a big increase; on the other hand, it leaves him with “only” $418,100 after tax. This is about $1,145 per day. Most Americans don’t spend anything like that even when on vacation and paying for hotels, airplane tickets, and so forth.
Yes, I know that there are other taxes, like property taxes and payroll taxes and so forth. We all have expenses. But there are a lot of unmet needs in this society; and we did not achieve the prosperity of the 20th century –prosperity that has declined significantly for a large minority, if not an actual majority, of Americans since 1980—by failing to meet our needs as a society. Quite the contrary, it was only after we introduced steeply progressive income taxation, and social welfare programs, that our middle class grew and our society began to realize its potential. We have given up middling prosperity for the great majority in exchange for lives of unimaginable wealth and privilege for a thin slice of our population. In the process, we’ve distorted our economy and our polity, our overall standard of living has declined, we’ve come close to ruining our social contract, and we’ve steadily lost ground when comparing ourselves to other countries on almost any metric you choose: healthcare cost and outcomes, life expectancy, income inequality, educational achievement –even literacy--, social and economic mobility, and so on.
It’s time to try something old.
