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Do you think there is an equivalent problem with acheiving ends you favor in this fashion but not for policies you presumably disfavor, such as increasing actual effective tax rates through bracket creep? Both the phase-out for the former and the phase-in for the latter result in payment of higher federal taxes. Perhaps you have another objection-that is, that it constitutes legislating by subterfuge or that it is being dishonest to the large majority of gullible voters? You, and presumably David, favor eliminating SALT deductions completely. It gradually acheives what politically would not have been acheivable had the deduction been eliminated completely or would have maintained the same effective limit at the time the limit had been introduced.
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Incompetence? I would say that the decision not to index the SALT deduction limit was the apex of competence. But those not getting Social Security benefits cannot be put in higher tax brackets by inflation alone. The income levels above which Social Security recipients pay taxes on their Social Security benefits, introduced in 1984, have never been adjusted for inflation. The result is that inflation by itself cannot put you in a higher tax bracket. In the 1981 Economic Recovery Tax Act, he and Congress cut marginal tax rates at all income levels annually from 1982 through 1984, and indexed tax brackets for inflation from 1985 on. Things bad begun make strong themselves by ill, as Shakespeare put it. His tax rates remained, inflation took off, and by 1980, middle-income Californians were paying tax rates that Reagan, his advisers, and the California legislature had intended only for high-income Californians. In 1967, Reagan and the legislature raised the marginal tax rates for people making $25,000 to $28,000 to 9 percent and for people making $28,000 or more to 10 percent. An income of $30,000 in 1966, adjusted for inflation, would be $268,694 today. For example, California’s marginal tax rate on people with taxable income of $30,000 or more was 7 percent in 1966.
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He was facing a substantial state budget deficit, but he chose higher marginal tax rates on higher-income people to deal with it. Although I’ve never seen this discussed, I would bet that Reagan badly regretted increasing the top tax brackets in California shortly after he became governor in 1967. And Ronald Reagan, upon becoming president, wanted to do something about the problem. Not surprisingly, Milton Friedman was ahead of the curve in advocating, in 1974, that tax brackets be indexed for inflation. Henderson, “ Index State Tax Brackets Now,” Defining Ideas, May 19, 2022. And remember that this is just the family’s personal income tax rate and did not include either the Medicare (HI) or the Social Security (FICA) tax. A four-person family with twice the median income paid a marginal tax rate of 26 percent in 1970 and a whopping 43 percent in 1980. A four-person family with the median income paid a marginal tax rate of 20 percent in 1970 and 24 percent in 1980. By 1980, that family was in an 18 percent tax bracket. In 1970, a four-person family with one half the median income was in a 15 percent tax bracket. A table in the 1982 Economic Report of the President tells the tale. This meant that tax brackets that had been designed for relatively high-income people were increasingly applicable to middle-income people and tax brackets designed for middle-income people were increasingly applicable to lower-income people. From 1971 to 1981, the annual inflation rate averaged 8.4 percent. The result, not surprisingly, was a decade of high inflation. But on August 15, Nixon closed the “gold window.” That meant that one remaining legal constraint on the Federal Reserve’s ability to print money was gone. Up until then, the US government stood ready to redeem foreign governments’ dollars for gold at $35 an ounce. But on August 15, 1971, President Nixon cut the last remaining link between the dollar and gold.
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The US government’s commitment to keeping the price of gold at $35 per ounce limited its ability to print money and, thus, limited its ability to create inflation. When the rates were set for the United States, there was a link between gold and the dollar. The word “progressive” doesn’t mean “good.” All it means is that as you progress up the income ladder, your marginal tax rate, which is your tax rate on additional income, increases. The US government and many state governments have progressive income taxes.