There are many things we need to do to confront and defeat the threat posed by dangerously high levels of income inequality. Changing the personal income tax brackets is one of the most important steps we must take.
Income inequality was much lower from 1940 to 1980 than it was before and after. During that time, the top tax brackets had significantly higher tax rates. Ronald Reagan cut the top rate from 70-percent to 50-percent and then to 28-percent. (He cut other higher bracket rates as well, of course.) Income inequality shot up immediately after. Then, to reduce the resulting deficit, Republicans cut programs for the poor, exacerbating the income-inequality problem. Since then, standard Republican fare has been huge tax cuts for the wealthy and pain and suffering for the rest of us. Republicans cut taxes for the wealthy at every chance, and they cut programs that give American families a fighting chance.
We must fix this, beginning with changing personal income tax brackets to provide more fairness for middle-class taxpayers and below. Because the Republicans have exploded the size of the federal budget deficit again, we must fix revenue problems first. Then, we will work on spending that helps American families.
Below, you can see the tax brackets for married couples filing jointly in 2017 (before the Republican tax cuts) and in 2018 after Republicans changed the tax law. Below those, you can see the brackets I propose. For each bracket, you can see the total tax taken for income in that bracket. Politicians sometimes play “fast and loose” with tax talk. It is important to understand that a person who makes $30,000 in taxable income pays exactly the same taxes on income in the first bracket as a person making $30,000,000. The rates increase only in higher brackets only for the income that falls within that bracket. So, for each bracket, I show the maximum tax that everyone pays if they have taxable income that exceeds that bracket. In the 2018 and “My Plan” sections, I show the limits of the additional tax for that bracket. (I did not include the same for 2017 as those brackets are no longer in play.)
At the bottom, I have “done the taxes” for various income levels. Please note that this is taxable income. I call for the standard deduction before taxes to equal 125-percent of the poverty rate and be tied to increases in the national poverty rate. No one living on income this small should pay any federal taxes. Additionally, I call for restoring the personal exemption at $2,000 per household member. I call for capping itemized deductions at twice the poverty rate. These deductions should be equally accessible for working-class and wealthy Americans. This tax will apply to all income, whether from labor, investments, or from inheritance. For estate income, the tax applies to inherited liquid assets (cash) and other inherited assets when they are liquidated. No one will be taxed for inheriting the family farm. However, if the inherited farm is sold, that income would be taxable.
There are, of course, other taxes to be addressed. I will expand on my policies for these as we go forward. However, do not feel like you have to wait to learn more. Hit me up at any public event with questions on this topic!
2017 tax brackets
$1-18,650 – 10% (total tax: $0 up to $1,865)
$18,650-75,900 – 15% (total tax: $1,865 plus 15% of each dollar between $18,650 and $75,900)
$75,900-153,100 – 25% ($10,452.50+)
$153,100-233,350 – 28% ($29,752.50+)
$233,350-416,700 – 33% ($52,222.50+)
$416,700-470,700 – 35% ($112,728+)
$470,700-infinity – 39.6% ($131,628+)
$1-19,500 – 10% (up to $1,950)
$19,500-77,400 – 12% ($1,950 plus up to $6,948)
$77,400-165,000 – 22% ($8,898 plus up to $19,272)
$165,000-315,000 – 24% ($28,170 plus up to $36,000)
$315,000-400,000 – 32% ($64,170 plus up to $27,200)
$400,000-600,000 – 35% ($91,370 plus up to $70,000)
$600,000-infinity – 37% ($161,370 plus…)
$1-25,000 – 8% (up to $2,000)
$25,000-50,000 – 10% ($2,000 plus up to $2,500)
$50,000-75,000 – 15% ($4,500 plus up to $3,750)
$75,000-125,000 – 20% ($8,250 plus up to $10,000)
$125,000-200,000 – 25% ($18,250 plus up to $18,750)
$200,000-300,000 – 30% ($37,000 plus up to $30,000)
$300,000-500,000 – 35% ($67,000 plus up to $70,000)
$500,000-750,000 – 40% ($137,000 plus up to $100,000)
$750,000-$1M – 45% ($237,000 plus up to $112,500)
$1M-2M – 50% ($349,500 plus up to $500,000)
$2M-5M – 55% ($849,500 plus up to $1,650,000)
$5M-10M – 60% ($2,499,500 plus up to $3,000,000)
$10M-20M – 65% ($5,499,500 plus up to $$6,500,000)
$20M-infinity – 75% ($11,999,500, plus…
Here is the application of the tax brackets. For the current (2018) rates and for my plan, I show the money the household will have left over (in addition to the excluded income from deductions and exemptions). I also show the effective tax rate for each income level. Note that only people whose income falls entirely within the first tax bracket pay a tax rate equal to the rate for their bracket. Since higher earners are paying lower rates for income in lower brackets, their effective tax rate cannot equal the rate of their top tax bracket. It is a mathematical impossibility. Looking at these examples, you can see the taxes are lower for those who make less and higher for those who make more. This is an important step forward in solving the income-inequality threat to our economy and our nation.
(*ETR: effective tax rate)
2018: $3,210 ($26,890 left, *ETR: 10.7%)
Alan’s Plan: $2,500 ($27,500 left, *ETR: 8.33%)
2018: $6,810 ($53,190 left, ETR: 11.35%)
Alan’s Plan: $6,000 ($54,000 left, ETR: 10%)
2018: $19,370 ($105,630 left, ETR: 15.5%)
Alan’s Plan: $18,250 ($106,750 left, ETR: 14.6%)
2018: $60,570 ($239,430 left, ETR: 20.19%)
Alan’s Plan: $67,000 ($233,00 left, ETR: 22.33%)
2018: $1,049,370 ($1,950,630 left, ETR: 34.98%)
Alan’s Plan: $1,399,500 ($1,600,500 left, ETR: 46.65%)
2018: $11,039,370 ($18,960,630, ETR: 36.8%)
Alan’s Plan: $19,499,500 ($10,500,500 left, ETR: 64.89%)
Social Security payroll Taxes
Payroll taxes should be fair for everyone.
Why are you paying a higher payroll tax rate than New England Quarterback Tom Brady? Why are you paying a higher payroll tax rate than members of Congress and the President? More to the point, why are they paying so little to support Social Security at a time when everyone is worried about the future of this vital program?
Payroll taxes that fund Social Security take away 6.2 percent of the income of workers making $132,900 per year or less. That includes around 90 percent of American workers. However, that tax is not collected on income above $132,900. So, a member of the US House or Senate, currently making $174,000 or higher (certain positions in the chambers earn higher salaries), pays a rate of just 4.7 percent. (The maximum tax under the $132,900 cap is $8,239.80, which is just 4.736 percent of $174,000.) Tom Brady, whose salary for last season was $14 million, pays a payroll tax rate of 0.059 percent. If you made $50,000 last year, Brady’s rate would take just $28 out of your pay. Instead, current law demands that you give up $3,100. Perhaps more to the point here, a US President making $400,000 pays just 2 percent. How is that fair to you?
I call for the removal of the payroll tax cap, making all income subject to payroll taxes. Tom Brady’s taxes will jump to $868,000. Believe me, he can handle it. Your Congressman will pay $10,788. As President, I would pay $24,800. This will save Social Security. In fact, the increase in revenue will be so large, that we likely can cut the payroll tax rate for everyone. A drop from 6.2 percent to 5 percent, for example, would mean a $600 decrease in taxes for someone making $50,000. While your tax rate drops from 6.2 percent to 5 percent, the rates for your Representative and your Senators will go from 4.7 percent to 5. The President’s rate would climb from 2 percent to 5. All of these changes are appropriate, fair, and necessary.