We Need More Tax Brackets, Not Less
It’s about that time of year when the country starts talking about taxes. In fact, I don’t recall any time when we aren’t talking about tax reform or tax code. The debate ranges from lowering or raising taxes, with a little bit of “we should have a flat tax” sprinkled in. What nobody talks about is the need for more tax brackets.
Currently, our system has seven tax brackets that proportionally tax you higher as your income goes up. For example, any income between $0-$9,325 is taxed at 10%. Anything over $418,400 is taxed at 39% and anything under is taxed at the rate of whatever bracket the income falls on.
Even if you make $418,400 your first $9,325 will only be taxed at 10%. The premise is that no matter how much money you make your first $9,000 is the most important to you because it goes to housing, bills, food etc. The most important income is taxed less and the least important money is taxed at a higher rate. To learn more about tax brackets click here.
Notice that it’s everything past $418,400 is taxed at the same rate. A person that makes $500,000 a year will have the last $80,000 of their income taxed at the same rate someone making $4,000,418,400 will have the last $4,000,000,000 taxed at.
An article in The Week explains that more tax brackets were an essential cog in the 1960s, a time when inequality was at the lowest point in the century. Instead of the highest earners leveling off at 39%, the highest earners would pay more as the income rises. people in the top 10% would be taxed at 43% in the 1960s, not at 33% today and the top 1% would be taxed at 60%, not at 39%. The tax would get higher and higher till it leveled off at 90% for the ultra wealthy.
Having more tax brackets wasn’t about the government taking in more money and handing out that money. It was about tax designs forcing the private sector to send the money elsewhere. What is the point in giving upper management and CEOs millions, sometimes, billions of dollars in bonuses if the large majority of it is going to go the government? The money instead would flow back down to the workers.
There were plenty of other factors that helped contribute to having less inequality, union membership was high, the minimum wage went farther. The ceiling may have been lower, but the floor was a lot higher.
Fewer brackets don’t necessarily mean simpler, and more tax brackets don’t necessarily mean a stunted GDP and anaemic job growth. Taxes are an essential way to make sure that the most vulnerable among us aren’t getting left behind while only a handful of people are reaping the benefits.