Megan McArdle raises an issue that I’ve long wondered about:
I don’t see why brackets top out at a relatively low level of income. Indeed, I don’t see why we have tax brackets. They’re inefficient, and a lot of them have pernicious marginal effects on those near the ceiling. Why not a continuously scaling function from negative (EITC) to some maximum? These days, people use either printed tax tables or tax software to prepare their taxes; this shouldn’t present an undue hardship. Obviously, with my preference for less government, I would recenter the scale so that people making $250,000 a year pay relatively less, and those making $10 million pay relatively more, in order to make the proposal revenue neutral. But the basic concept seems bipartisan.
As a matter of principle, this seems spot-on to me; and as an added bonus, eliminating tax brackets would of course be a terrific way to get rid of various pernicious misunderstandings that attend to the concept of a marginal tax structure in general. Is there any particular reason why such an alternative tax structure would be difficult to implement in practice? And if not, is there any particular reason – aside, of course, from the fact that politics is the place where sane, bipartisan concepts go to die – why a proposal like this one couldn’t gain some legislative traction?