![]() Where you notice an error in the following assumptions, please point them out and I will try to update to help others. With these clarifications in mind please also note that I know next to nothing about tax systems. However, given that any possible incentives for avoiding crossing a tax bracket are a minor point and not the focus of the question, I’ve moved this discussion from the question’s introduction to the “Assumptions” section below. Even in the cases where bracketed tax systems are marginal I think some incentives (real or perceived) for an earner not passing a bracket could exist. This wording understandably caused some answers to focus on an implied misunderstanding of marginal brackets. In an attempt to avoid this confusion I’ve updated the text in the question above to reduce the scope of the question such that it includes only the comparison between bracketed, marginal tax systems versus continuous, non-marginal, non-bracketed tax systems.Īlso, the wording of my original question included possible incentives for earners to not pass an income bracket. As such, despite the discussion of incentives in the original question, non-marginal bracketed tax systems were not intended to be the focus of the question. However, I don’t know enough about tax systems to know if any relevant bracketed tax systems are non-marginal. ![]() The focus of the question was intended to be a generic comparison of bracketed vs continuous systems that ignores whether the bracketed system is marginal. ![]() To that end I offer this attempt to clarify the question. Your tremendous feedback unburdened some of my misunderstandings and helped me recognize some confusing points and distractions in how the original question was posed. Thank you to all who have taken time to propose answers and comment so far. “Where should the line or curve start and how fast should it rise?” “Where should we place the brackets and how many brackets should there be?” In a continuous tax system the tax rate would instead increase along some line or curve as income increased. In the current bracketed tax system the tax rate line increases as steps in a ladder. Picture a chart with income on the X axis and tax rate on the Y axis. There would be some obvious trade offs, but would it be worth considering eliminating the marginal, bracketed tax system in favor of a continuous, non-marginal tax rate system without brackets? In some countries like the US the tax system is bracketed rather than continuous.
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