The most hated word in America.
Here's the problem: we have a progressive tax system that is artificially truncated.
The current Federal Income Tax brackets are:
Tax Brackets 2011 Single Taxes owed per year
10% Bracket $0 – $8,500 Up to $850
15% Bracket $8,500 – $34,500 $1,275 - $5,175
25% Bracket $34,500 – $83,600 $8,625 - $20,900
28% Bracket $83,600 – $174,400 $23,408 - $48,832
33% Bracket $174,400 – $379,150 $57,552 - $125,119.50
35% Bracket $379,150+ $132,702.50+
What's the first thing that jumps out at you? The fact that there are five brackets to cover all those earning up to $380,000 and then only ONE from then on? So what our current tax system is saying is that your taxes go up 5% when you get a raise from $34,500 to $34,501, but go up ZERO percent when you get a raise from $380,000 to $1,000,000. In other words, the small business owner that has to work 20 hour days to earn his $380,000/yr gets taxed the same as the twenty five year old pro athlete whose entire job is to be a gym rat and makes millions per year. There's nothing fair or progressive about that.
The purpose of a progressive tax system is to shift the burden of the government from those who need help to those who can provide help. The thinking goes that the wealthy individuals and families in this country have benefited by the protection the United States has provided them, and as such, they can afford to bear the responsibility of ensuring the country's fiscal survival. (It's a flawed premise that's too often abused and leads to the wealthy feeling a sense of control over how "their" money is spent, but it's been the system we have.)
To that end, the system is failing because a) the increases at the lower levels are too drastic, and b) it stops prematurely. I would propose a broader, flatter bracket system that attempts to reduce these issues. It shouldn't matter what percentage of the population fits into each bracket, it should matter that each bracket represents a shift in earnings potential.
Freddy's Tax Brackets:
Tax Brackets 2011 Single Taxes owed per year
10% Bracket $0 – $10,000 Up to $1,000
15% Bracket $10,001 – $35,000 $1,500 - $5,250
18% Bracket $35,001 – $80,000 $5250.15 - $12,000
20% Bracket $80,001 – $175,000 $16000.20 - $35000
25% Bracket $175,001 – $400,000 $43,750.25 - $100,000
28% Bracket $400,001 – $700,000 $112,000.28 - $196,000
10% Bracket $0 – $10,000 Up to $1,000
15% Bracket $10,001 – $35,000 $1,500 - $5,250
18% Bracket $35,001 – $80,000 $5250.15 - $12,000
20% Bracket $80,001 – $175,000 $16000.20 - $35000
25% Bracket $175,001 – $400,000 $43,750.25 - $100,000
28% Bracket $400,001 – $700,000 $112,000.28 - $196,000
30% Bracket $700,001 – $1,000,000 $210,000.30 - $300,000
35% Bracket $1,000,001 – $4,000,000 $350,000.35 - $1,400,000
38% Bracket $4,000,001 – $10,000,000 $1,520,000.30 - $3,800,000
40% Bracket $10,000,001+ $4,000,000.40+
Obviously, millionaires would not like this plan, but tough - just another reason to make more money. I've pushed the rates down and spread them out more. The most extreme tax rate disparities would be at the $175,000 level but my thinking was that people who are at that level are successful businessmen or upper middle management types that frankly can afford it. This is especially important, as the current system creates some of the largest disparities between the lower brackets, thus almost sabotaging the whole system.
Republicans (populists, not businessmen, obvi) argue that a better answer is to not have a progressive tax system at all, but a fair/flat tax with very few loopholes and balanced burden. Not a terrible idea.
Of course, the real answer is that there should be no Federal Income Tax. The idea that our devotion to the State is based on our capitalist value is disgusting to all thinking men and women. But I digress...
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