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15 IRET Congressional Advisory 1 (1993)

handle is hein.taxfoundation/iretcgadv0014 and id is 1 raw text is: June 3, 1993 No. 15
THE BRACKET RACKET: HOUSE
TAX BILL LOWERS TOP TAX
THRESHOLDS WITH INFLATION
A review of the fine print in the House-passed

The result of the slippage in the bracket
thresholds will be to subject more of the nation's
most productive people to punitive tax rates,
disproportionately discouraging output and saving.
Punishing the nation's major savers and investors is
strange behavior for Members of Congress who
publicly fret over the inadequacy of national saving
and investment.
The tinkering with indexing may be part of a
broader strategy to suck an increasing share of
everyone's income into the Treasury: add more tax
brackets, repeal indexing, and inflate away! The
effect on the economy would be devastating.
President Carter tried using inflation and
bracket creep to balance the budget. The result was

tax proposals reveals that it v
lower  the   real   income
thresholds  at  which  the
proposed 36% bracket and the
10% surtax kick in.
Ostensibly,  the  36%
bracket  would   begin   at
$140,000 for married taxpayers
and $115,000 for a single
taxpayer  in  1993.    The
(formerly) millionaires' 10%
surtax  would    begin  at
$250,000 in 1993. The other

personal exemptions,
adjusted (indexed)
thresholds would be
year's delay, that is,
December 31, 1994.

vould let inflation

higher labor costs

The   pr-oposed   delay    in
implementing indexing.., proves
once  again Just how    eager
Washington is to pull a fast one
on the    taxpayers, and how
important  a   safegard  for
taxpayers indexing is.

tax brackets, the

and standard deductions are
for inflation.  These new
indexed too, but only after a
for tax years beginning after

In other words, assuming 4% inflation between
1993 and 1994, the 36% bracket thresholds for 1994
and beyond would be allowed to slip to $134,615 in
real 1993 dollars for married taxpayers and to
$110,577 for single taxpayers. The 1994 surtax
threshold would slip to $240,385 in real 1993
dollars, and remain at this depressed real level
forever after.

Institute for
Research on the
Economics of
Taxation

and reduced employment growth
as workers were forced to
demand   pay  increases  in
excess of the cost of living to
maintain the same real after-
tax income after bracket creep.
U.S. competitiveness collapsed.
At its peak, the bracket creep
due to the inflation of the late
1970s was absorbing 100% of
the productivity-related gains
in gross national product. Not
a penny of the gains went to

labor or capital, and after-tax incomes fell. Carter
did Marx one better: From each according to his
ability, to the government.
Workers and businesses did not sit still for this,
of course.  Strikes against mandatory overtime
became common; no one wanted time-and-a-half in
cash with wages spilling over into higher tax
brackets. The flight to shorter hours and non-
taxable fringe benefits took off (including ever-more
generous health fringes that added fuel to the
medical cost fire that consumes the federal budget
today). Production moved offshore. Higher tax
rates depressed private saving and investment. The
tax element of interest rates zoomed, raising capital

IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the
public about policies that will promote economic growth and efficient operation of the free market economy.
1730 K Street, N., Suite 910, Washington, D.C. 20006
Voice 202-463-1400 * Fax 202-463-6199 0 Internet www. ret.org

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