U.S. Personal Income Taxes 3

Unlike a flat tax that distributes the tax burden proportionally based on income, graduated income taxes subsidize lower tax rates on those with lower incomes by placing higher tax rates on those with higher incomes.

Advocates cite a variety of reasons for charging those with higher incomes a more than proportional share of the income tax burden. Interestingly, the mathematics involved also make it politically advantageous to do so, as raising tax rates for a number of higher income taxpayers permits lowering the rates for a larger number of lower income taxpayers.

Using a set of simple graduated income tax rates with no special-interest tax adjustments, I tried to generate roughly the same tax revenue distribution as the 2007 tax year for each of the 12 IRS-reported income categories. If I'm modeling the graduated tax rates based on the IRS statistical data correctly, the following income tax rates would approximate the existing tax revenue distribution based on income:

• 2% for the first $5,000 of income,


• 4% for the next $10,000 ($5,000 to $15,000),


• 10% for the next $35,000 ($15,000 to $50,000),


• 12% for the next $50,000 ($50,000 to $100,000),


• 20% for the next $100,000 ($100,000 to $200,000), and


• 24% for all income above $200,000.

Note that because highest IRS-reported income category is $200,000 and above, the tax rate for that category is higher than it should be for those whose income is near $200,000 and lower than it should be for those whose income is far above $200,000. To more closely match the current income tax distributions, there should probably be 28% and 32% brackets as well, but I don't have the information to estimate them with any accuracy.

Advantages over existing tax code:

• simple and easily understood


• simpler individual tax forms


• reduced tax calculation errors (both unintentional and fraud)


• reduced costs for Internal Revenue Service (IRS): tax form publication, tax education, tax collection, and tax enforcement

Disadvantages:

• reduced work for individual tax preparation businesses (accounting, filing, publishing, etc.)

Differences:

• does not subsidize desired societal behaviors with special-interest tax incentives, resulting in lower taxes for those people who don't take advantage of special-interest tax laws, and higher taxes for those who do


• everyone with income files separately, so multiple income households would pay lower taxes than single income households with the same overall income (e.g., no "marriage penalty")