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From: mam@charm.UUCP (Matthew Marcus)
Newsgroups: net.taxes
Subject: Re: Tax Bracket Question - (nf)
Message-ID: <289@charm.UUCP>
Date: Wed, 28-Mar-84 19:17:05 EST
Article-I.D.: charm.289
Posted: Wed Mar 28 19:17:05 1984
Date-Received: Fri, 30-Mar-84 01:29:36 EST
References: <2876@fortune.UUCP>
Organization: Physics Research - AT&T Bell Labs MH
Lines: 47

Fortune!mbr points out that if incomes keep changing monotonically, the
tax-bracket structure will degenerate into a flat tax. He wonders why this
has not happened and why indexing is still not with us.
	The second question first: One reason indexing isn't here is that
inflation seems to be as much a part of a normal economy as heat production is
of a normal human body, so 'bracket creep' serves as a painless way of raising
taxes.  Fedgov keeps raking in more and more without the sordid details of actually
enacting an explicit tax increase.  A similar mechanism is in effect for SS
taxes, for which the base rises on a formula determined some years back, so
present Congressthings don't have to keep it before the public that their
taxes are going up yet again.
	As to the first point: I don't know how often the brackets have been
changed, but with the present setup, only a small fraction of people are at
either end.  Since inflation is historically predomenant, we need only
think of the high end.  At present rates, it will still take quite a while
before most of us enter the top bracket -- there are LOTS of steps left, since
the brackets are pretty finely divided.
	While I'm discussing this dismal and depressing subject, I'd like to
debunk a myth.  Many people think that if they acquire more than a certain
amount over their 'normal' income, they will be 'put into a higher tax
bracket' and their net income will decrease, so they scan the tax tables,
looking for the breakpoint.  This fear rests on the assumption that at any
income, the tax is some fraction of the income, said fraction rising as in
a staircase curve.  This leads to a piecewise linear and DIScontinuous tax
vs. income curve, wherein $.01 extra income can suddenly incur $$$$ extra
tax. THIS IS NOT TRUE!
The way it works is that the tax is computed as
x %	of your first	$y
 1			  1

x %	of your next	$y
 2			  2

x %	of your next	$y
 3			  3

....

x %	of your next	$y
 N			  N

with N>>1.  This results in a tax curve which is piecewise linear and
CONTINUOUS, so you can never incur more that $.005 (I think) extra tax on
that extra $.01

	May the IRS rot in ****
		{BTL}!charm!mam