High Marginal Tax Rates - Essay Example

1. Why tax analysts worry about marginal rates, not average rates, in looking for incentive effects of taxes.From the case, when marginal tax rates were really extreme. For instance, I support my classmate Daniel when he argues that high tax rate is unfair to low income citizens. He gives an example of a struggling student who with time becomes a successful author but cannot provide for his family for the reason that more than half of his income was taxed. This happens even despite the fact that the author made that amount of money in a short period of time.

The issue of income averaging does not work in favor of the people who receive payment in large lump sum payout. This is because a tax rate of certain number of years would produce a total tax bill void of present value considerations with more than fifty percent of marginal rates. 2. The relevance of this case for discussions about revisions of the federal income tax system.The case is relevant to the American federal income tax system in the sense that it talks about the impacts of high marginal rates with enormous progressivity.

Therefore, in order to ensure fairness, the federal income tax system need to introduce income splitting and averaging provisions in the tax policy, and lowering the marginal rates as well as decreasing the number of brackets. Just like my colleague Robert referred to Mikesell’s work that splitting the income in the five year phase would lessen the tax load from $85,092 to $48,213, I agree that this would be a big step in adjusting the federal income tax system operations. For example, altering the dollar amount would act as an effective way of lessening the marginal rate from approximately 84.55% to 56.05%.

To revise the tax code, income averaging can be considered to promote compliance with the current tax system, which depends on the corporation of citizens to pay the shares. These measures ensure that individuals are not taxed heavily since their taxes are calculated on the present value of their money.