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The US Senate's recently adopted tax plan calls for seven tax brackets. Ignoring for the moment the tax rates attached to each bracket, it seems strange that the taxable income range for bracket 5 (320,000 to 400,000) appears to be inconsistent with size and other brackets:

            Tax bracket       Size
    -------------------    -------
1)        0 -    19,050     19,050 
2)   19,050 -    77,400     58,350 
3)   77,400 -   140,000     62,600 
4)  140,000 -   320,000    180,000 
5)  320,000 -   400,000     80,000 
6)  400,000 - 1,000,000    600,000

I can understand that the bracket intervals becoming progressively larger, but Bracket #5 seems to break that pattern. As a note, that same peculiarity exists in the tax code currently in use.

On the other hand the House Tax reform measure does not have this oddity in the 300,000 to 400,000 region.

So, can anyone explain the rationale for this rather "small" tax bracket?

Even though this would appear to be a "money" issue, since it is a dispute between the two houses of congress, it is very much a political policy question.

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The reason why it exists in the current Senate bill is that it exists in the current system and they didn't fix it. You do not have to look farther than that.

The House did fix this as part of reducing the rates from seven brackets to four. This is one of the brackets they killed.

The reason why it exists is that a set of tax cuts passed during George W. Bush's administration were set to expire on January 1st, 2013. So Barack Obama and Congress negotiated a compromise. They would keep the 75% of the Bush tax cuts on the lowest incomes and get rid of the 25% on higher incomes. So on one side of 75% the tax rate stayed at 35%. On the other side, the tax rate went up to 36%. But the pre-cut threshold was close to that 75% threshold. So it produced an exceptionally small tax bracket. And both Obama and the Republicans were able to boast that they kept 75% of the tax cuts.

In other words, it was politics trumping policy. It's much easier to say 75% than 73.94% (or whatever). So they made a number that is meaningless to individuals easy and made a number that is annoying to individuals complicated.

  • 1
    @Brythan, not sure I completely agree, but your explanation seems plausible (an improvement over my "head-scratching"). As far as "killing" a bracket, it looks to me like the House "killed" the 15, 28 and 33% brackets. But what that accomplishes - I don't know. As far as the Senate failing to "fix" something, all they had to do was change the taxable intervals - which they did. – BobE Dec 4 '17 at 5:12
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    Comments deleted. Please note that this is not the place to discuss what kind of taxation system is "better". – Philipp Dec 4 '17 at 9:16

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protected by Philipp Dec 6 '17 at 10:31

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