taxation

[ZenGum]

Originally Posted by henry quirk

I get the whole 'regressive' thing of my proposal, but, consider...

Leave the income tax exactly as it (on all levels) with one crucial difference: anyone making $20,000 or below pays nothing; anyone making $1 million or above pays 90% (state and federal combined) (those folks in-between you can gradate as you like).

This would create a situation where someone on 990,000 has a strong disincentive to earn more. This should be avoided.

A tweak, if I may:
These numbers are just placholders, both the dollar values and the % rates, using round numbers for simplicity.

The first 20,000 is tax free.
From 20,000 to 100,000 is taxed at 25%
From 100,000 up is taxed at 50%.

Income .......... tax ....... keep ........... effective rate
10,000..............0 ............ 10,000......... 0%
50,000 ............. 7,500 ..... 42,500 ........ 15%
100,000 ........... 20,000 ..... 80,000 ....... 20%
200,000 ............ 70,000 ...... 130,000 ...... 35%


To explain, the guy on 200,000 pays nothing on the first 20,000 earned, then pays 25% on the next 80,000, then pays 50% for the next 100,000. You can tinker with the rates and threshholds to your satisfaction.
The trick is to have the tax rate apply only to the dollars earned above the minimum threshhold for that rate. This delivers a reasonably smooth increase in the effective rate as income increases, without creating a case where a person could earn more but keep less.