Political party sentiment seems to invoke the past a lot, especially Reagan and the 1980s and Eisenhauer and the 1950s as the best of times. Well, let’s hearken back to the tax code of those eras to see if ideas implemented then actually worked thereafter. Maybe we find a few solutions to the 2016 financial woes, and then add a few modern electronic improvements.
Let’s have a thousand tax brackets today. Back in the ‘50s ‘60s and ‘70s there were many tax brackets (though not thousands, not even hundreds or dozens) resulting in the phenomenon called “bracket creep”. “Bracket creep” was common, that is, lower the individual’s tax bracket by tweaking a few deductions and thereby pay less tax. Tax reform in the 1980s opted for fewer tax rates under the rubric of simplification. Ha! Bracket creep declined when many tax rates were reduced to few and thus there was little motivation to “creep”.
Let’s adopt a fundamental social principle – – if an individual makes a little more money, then the individual pays a little bit more tax. Now, with sophisticated algorithms and machines, many tax rates can be calculated simultaneously. With a thousand tax brackets there is little motivation to do the extra work to “creep” toward a lower bracket because the benefit will be too small to justify the extra tax preparation work. The other side of the algorithm can increase government revenues in a manner that hurts everyone just a little bit. Everyone is unhappy, but just a little bit!