Maybe we should have more tax brackets, not fewer

April 17, 2013

On Monday, I posted this graph showing that the U.S. tax system is the most progressive in the developed world:

Note, however, that that data looks at the top 10 percent. The Center on Budget and Policy Priorities, in their 10 graphs for tax day, had a different take:

"The overall tax system is pretty progressive but seems to be built for a different era before the divergence of the 1 percent and the 0.01 percent from the 99 percent and the 99.99 percent," comments Matthew Yglesias on Slate. "It rightly draws a large distinction between the bottom quintile and the fourth quintile but fails to draw a major distinction for gaps within the top quintile."

This gets at an interesting issue in tax policy. Many tax reformers want fewer and flatter tax brackets. The Republican budget, for instance, sets two brackets, one at 10 percent and one at 25 percent.

An alternate view, which you see in the Progressive Caucus Budget, is that the widening income inequality means we should have more tax brackets at higher rates, as not everyone in the top 10 percent is the same. There's a huge difference between someone who makes $150,000 and someone who makes $1,500,000 and someone who makes $50,000,000, and the tax code should reflect that.  So their plan includes Rep. Jan Shakowsky's idea for more upper-income tax brackets. Her tax code would look like this at the top:

- $1 – 10 million: 45%
- $10 – 20 million: 46%
- $20 – 100 million: 47%,
- $100 million – $1billion: 48%
- $1 billion and over: 49%

This is closer to the tax code of the 1950s and 1960s, when there were top brackets that were meant to affect only the very richest Americans.

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Brad Plumer | April 17, 2013