Bracket Creep
by Richard
The latest….from the class warfare front.
It’s policy now. For single incomes above $200,000, or couples above $250,000—taxes will rise steadily. Not just taxes, but also a corresponding reduction in exemptions and other write-offs.
Most notoriously, the sacrosanct mortgage interest deduction will be under attack, with those in the 35% and 39% brackets only allowed to deduct 28% of their allotted interest deduction.
It’s hard to gin up any sympathy for the rich when the middle and lower classes are reeling from the economics dislocations in the equity and housing markets.
Until, that is, we re-discover the insidious tax known as bracket creep.
Pay attention the next time you watch a classic movie from the 40s or 50s. You will chuckle when the characters voice their aspirational dream of someday earning a salary of $10-15,000. That was upper middle class income back then…an automatic ticket to the good life, including home ownership, college funding and a secure retirement.
Today it would just be a full year of employment at the mandated minimum wage.
That was then, and this is now…
Take the $50,000 median family income and compound its growth at 6.65% for the next 25 years…and you will end up with a $250,000 median income.
And with the wave of hyperinflation that will result from the printing of trillions of dollars of stimulus spending, we can expect years, perhaps decades, of CPI increases above 6.65%.
We’ve seen this movie before. The Alternate Minimum Tax was created 40 years ago to trap the scofflaw millionaires who then paid little or no income tax.
And today it reaches several tens of million taxpayers who are not rich by any stretch of the imagination.
Now you understand how a nominal number set as a baseline becomes meaningless in the context of the steady rising increment of inflation.
And all this assumes the rich will remain passive in the face of this confiscatory onslaught…a belief that contradicts all recent economic history.
This static analysis of taxation, that assumes no change in behavior on those under assault, defies all understanding of human motivation and creativity.
The next growth industry in America will be wealth preservation at a time of virtual class warfare.
Entire businesses and industries will migrate to friendlier climes, and clever accountants and tax lawyers will instruct their clients to shift into appreciating assets that are not harvested to yield capital gains taxes.
It could be worse.
In the 1790s the French enforced the ultimate in capitation taxation via the guillotine.
Resentment of one’s betters is a constant in history….so we should be relieved that current policy is mostly directed towards discriminatory taxation.
The AIG lynch mob being a case in point.
