Monday, October 4, 2010

A tax bracket question

I was listening to something Paul Krugman said over the weekend about putting more rungs in the tax ladder.

It occurred to me - why is the battle over what percent the existing tax brackets should pay, when it could be about how far apart the tax brackets are.

I do my best to understand the other side, and it occurred to me today that I never really added up everything I knew when I thought of historical top tax rates. I was aware that the top bracket has been absurdly high, but I never considered at what income those tax rates kick in. Combine that with how tax brackets work by sectioning ones income into different brackets, and how the very wealthy make a lot of money with very little additional effort and you should see a lot less elasticity if you simply raise the rate to get into the top bracket, say to $2 million instead of the $250,000 for families President Obama wants.

You will still have some loss of innovation as the loss in income from the tax discourages people from producing more, but the damage will be lessened as it becomes harder to into the tax bracket. The number of people helped is only less than 3 percent of the population, but keep in mind this is the most productive and innovative section of the population. It would be a much easier sell in Congress than dissolving the bracket, so I wonder why no one is trying it.


  1. I like the last 10 seconds of that video.

    I must say, though, I think that your idea is actually a very good one. I'm impressed that you actually think such a liberal idea would be good. At least, it would be a better idea that Congress dissolving the bracket, as you say.

  2. I didn't say it would be better, I said it'd be easier to pass. That is is the nature of compromises.

  3. oh. okay. So, you don't actually think it's a good idea, then?

  4. What I advocate would be an improvement on the current system, otherwise I wouldn't have written about it.