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From: mbr@fortune.UUCP
Newsgroups: net.taxes
Subject: Tax Bracket Question - (nf)
Message-ID: <2876@fortune.UUCP>
Date: Wed, 28-Mar-84 15:13:46 EST
Article-I.D.: fortune.2876
Posted: Wed Mar 28 15:13:46 1984
Date-Received: Fri, 30-Mar-84 00:23:05 EST
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Organization: Fortune Systems, Redwood City, CA
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#N:fortune:15800004:000:1368
fortune!mbr    Mar 28 10:28:00 1984

I've wondered about something for a while, and maybe somebody out there
can enlighten me.  A progressive tax structure which is not indexed to
inflation (or deflation, which is an unlikely but hypothetical possibility)
appears to degenerate towards a flat tax rate given the reality of
inflation (or deflation).  My reasoning is as follows:

In an inflationary economy, people with income earn more in number of
dollars to maintain the same buying power.  Eventually everyone will
be in the highest marginal tax bracket.  If the process continues beyond
even that, eventually the portion of income taxed at lower than the
highest tax bracket becomes negligibly small.  At that point, you have
a flat tax rate.

In a deflationary economy (does such a thing exist?), people would get
paid in a smaller number of more valuable dollars.  Eventually, everyone
is in the lowest tax bracket.

So, it would seem that unless the value of a dollar remains constant,
the tax structure is constantly trying to turn into a flat tax. 

Is there a flaw in my reasoning?  If not, how do we manage to continue
to have a progressive structure?  How often have the brackets been adjusted
over the years?  And by how much?  Why has indexing been so long in coming?

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