Re: Why I Pay Too Much in Taxes

[Black Unicorn <unicorn@schloss.li>]

On Tue, 7 May 1996, Timothy C. May wrote:

> At 8:46 PM 5/7/96, Black Unicorn wrote:
> 
> >I'm not sure I understand what you mean.  I sent the text of the law to
> >the list.  The position that you take (that increse in inflation can send
> >you into the next tax bracket) is incorrect.
> 
> I wrote my comment before I saw your message. Does this make it clearer?

It does.  My apologies.

> I agree that the fewer brackets have lessened the problem in the last
> couple of years, but, then, inflation has not been an issue in the last
> couple of years. (I seem to recall an explicit statement that the brackets
> would not be adjusted upward, as the bill called for, because the inflation
> rate had been below the threshold....).

Any increse less than $50 in the bracket rates is rounded down to the next
multiple of $50 under Section 1(f)(6)(A).

I do also recall a threshold statement of some sort, but I always thought
it refered to the $50 rounding exception.

> In any case, my larger point has been about the effect over the last decade
> or so, where significant numbers of people are now up at the 40-45%
> marginal tax rate (Federal plus state, in many states).

Agreed.  And many states do not adjust taxation brackets for inflation.

> ...
> >Rates will not change with respect to inflation (to the extent that
> >inflation is accurately measured by the CPI).
> >
> >I believe an exception was made for the top bracket in 1994, but I don't
> >recall how it was implemented.
> 
> The top marginal rate was increased. As I recall, from around 38% to
> around 42%.

My 1994-1995 code indicates 39.6% for single heads of households with
incomes over $250,000.  (Pay $77,299, plus 39.6% of the excess over
$250,000).  That was for the 1994 tax year.

If there was an explicit raise, I haven't heard (though this isn't too
surprising, I haven't paid much attention to domestic U.S. tax rates
lately).

There is a phaseout of personal exemptions and deductions for the highest
bracket which can effectively bring the tax rate above 40%.  Is this what
you mean?  (Or have I been sleeping through the tax legislation process?)

> (As the money runs out, as the so-called trust funds turn out to be empty,
> as "entitlements" expand, and as more and more people are too
> poorly-educated and -motivated to succeed in high-paying jobs, I expect the
> top marginal rate to continue to be ratcheted upward. Until other forces
> come into play, of course.)

Agreed.  As per other forces, I can't see any given the Forbes fall and
the lack of interest in a flat reform measure.

I do, however, predict that compliance will begin to fall much more
dramatically following any explicit raise above 40%.
 
> 
> --Tim May
> 

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