I often find myself exasperated by politicians referring to the "middle class" and the "rich" and then mangling the two. Today we have to listen to tea party politicians like Alberta Darling tell us that someone making $250,000 a year isn't "rich" (Fast forward to about 7:45). You know the mantra - "Those aren't the rich, those are small business owners."
And then we have to grapple with issues like the Alternative Minimum Tax. Remember how that was supposed to close the tax break loopholes for "rich" folks and lasso them into paying at least a minimum tax rate? Well, today that is increasingly sweeping up two-income families from the upper tiers of the middle class, folks who weren't considered "rich" in the past.
It used to be that a millionaire was a millionaire. We all knew what that meant. Not any more.
How about redesigning our tax system around the Median Household Income to get us out of this silly cycle of redefining rich and poor as time and inflation goes by? The Median Household Income is a great baseline to do that. Even a Democratic politician might be able to successfully mumble the phrase "...what half the families in America have to live with".
The Yearly Median Household Income in the U.S, according to the U.S. Census Bureau, is $50,221. That's pretty close to a nice round number.
Let's look at how things stand with the current system.
2011 U.S. Federal Tax Brackets for Married Couples Filing Jointly:
Taxable Income Between... |
Is Taxed At... |
$0 - $17,000 |
10% |
$17,000 - $69,000 |
15% |
$69,000 - $139,350 |
25% |
$139,350 - $212,300 |
28% |
$212,300 - $379,150 |
33% |
$379,150 or above |
35% |
You'll note that the numbers seem arbitrary. Why $212,300 and not $217,348? These numbers don't mean much to the ordinary person and they reflect the value of today's dollars. I'm sure the IRS has some formula for adjusting the tax brackets for inflation, but the average person doesn't have much insight into that arcane world. We know the politicians love to dabble with them and leaving them in dollar-referenced terms just keeps them involved in the tweaking.
In my fantasy world, the tax brackets would be tied explicitly to the Median Household Income. Dollars would be out and American Families would be in!
(Hey, this is my fantasy, so just go with it...at this point confetti and balloons are raining down and there are waves of triumphant music - lots of trumpets and french horns.)
Fantasy Tax Brackets Married Couples Filing Jointly:
Taxable Income Between... |
Is Taxed At... |
$0 - 1/2 x Median Household Income |
10% |
1/2 x Median Household Income - 11/2 x Median Household Income |
15% |
11/2 x Median Household Income - 3 x Median Household Income |
25% |
3 x Median Household Income - 5 x Median Household Income |
28% |
5 x Median Household Income - 10 x Median Household Income |
33% |
10 x Median Household Income - 100 x Median Household Income |
37% |
100 x Median Household Income and Above (RICH!!!) |
40% |
Let's summarize the advantages of my
Fantasy Tax Brackets:
- It clarifies the progressive nature of the tax code.
- It benchmarks all the rates to "what half of America's families have to live with"
- Rich means 100 x of "what half of America's families have to live with" (Right about $5,000,000 in today's money and income statistics).
- As the Median Household Income changes with inflation and/or economic conditions, the tax rates are automatically adjusted. No need for the politicians to dabble.
- Think about that a bit...does this create an incentive for the "rich" to actually try to raise the Median Family Income in order to decrease their own taxes?
- It's Progressive and Populist.
Disclaimers
- The income ranges and tax rates were a wild ass guess, I haven't crunched the numbers to see if this is revenue neutral or not. This is a straw man, so try to focus on the concept rather than the minutiae.
- Maybe we should work with net income and simplify things even further.
- The per capita median is $27,041, but for sake of simplicity, I've focused on families for demonstration purposes. We'll have to figure out new tax tables for individuals too, but we'll see if this idea catches on before taking this much further.
- Families with taxable incomes below zero would receive a unicorn.
- Yeah, like the Republicans or the Democrats would even consider this.
- You can have fantasies too!