Abstract: Paper No. 187

Placing a Lid on Marginal Tax Rates: A New Way to Simplify the Income Tax Structure

John M. Yinger

August 1997 

Thanks to the phasing out of exemptions and excess itemized deductions and to the alternative minimum tax, the federal income tax rate schedule is difficult to draw, to understand, and to connect with any tax principle. Moreover, some taxpayers now face unreasonably high marginal tax rates. This paper proposes a new approach that simplifies the income tax system at its point of intersection with taxpayers; sets absolute upper and lower bounds on true marginal tax rates; and allows for the phasing out of any or all exemptions, deductions, or other tax preferences according to clear principles. This approach can achieve any desired degree of progressivity.  

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