The summer before I actually started college I worked in a University laboratory that did research into an odd corner of nuclear engineering. The lab had a lot of high-tech gear, and the chief of the technical group that maintained it was a master hacker who could, and did, recycle old IBM 6xx parts into interface boxes to connect equipment from different manufacturers together and control the fairly complex (for then) arrangements we had for schlepping slightly-radioactive samples around. “Jimmie” (not his name) made just under $7,000 a year, a little under $3.50 an hour. He had a wife, two children, a mostly-paid-for brick-veneer home on a couple of acres in the country, two cars, and a tractor. He also complained that because prices were so high and his wife so extravagant, he was unable to meet his goal of having a year’s salary in the bank — the best he’d managed was nine months.
That same summer the talk of my little part of the campus was the star of the previous class in my major, who had been offered the highest starting salary of anybody in that field, ever: $11,000 per year. Can you imagine?
In those days income taxes were a minor irritation for most people. The tax form was one or two pages, and it was easy enough to collect W-2s, fill in the spaces, and send it in. That was even true for self-employed and semi-self-employed people like truck drivers: take your gross and put it on the top line; add up what you paid for gas, insurance, food on the road, truck payments, and repairs, subtract, and look up the result in the tax tables. Write a check, stamp the self-addressed (but not prepaid) envelope, drop it in the mail, and forget it for another year (for most people) or three months (for the more prosperous ones). Tax brackets accommodated that. Roughly, under $10K a year was an ordinary worker whose taxes were simple and not burdensome; $10K-20K was middle class, an engineer, accountant, ordinary doctor, dentist, or the like, and they had more complex forms and paid more in proportion; over $20K was a specialist doctor, a banker, a high-flying stockbroker, or a successful small business owner, a plutocrat who got hammered on April 15th.
Then along came the Nixon-Carter inflation of the late Sixties and Seventies. If the underlying economy is relatively healthy, as it was then, ordinary working people aren’t much affected by inflation except psychologically. Wages and salaries lag prices, but eventually they go up to match income to outgo. The nastly little secret of all economics is that most ordinary people spend their whole income on what they need or want to live, with the prudent ones putting back maybe five percent in savings. The only thing that really changes with inflation, for most people, is where the decimal point goes. See, for instance, this record of gas prices since 1979. Take the inflation out, and the price has hardly changed at all; that’s an anecdote, of course, but it matches most people’s experience. (Divide the lower, inflation-adjusted prices by three to match my experience starting in the early-Sixties.)
What didn’t change was the tax brackets, which were absolute numbers. When “Jimmie” made $7k a year, he paid a modest amount on a simple form. By the mid to late Seventies that same job paid over $20K — and was taxed according to “plutocrat” standards, complete with annoyingly complex forms to fill out for the same pattern of income and outgo. This, of course, was the point. Government wanted more income, and then as now people were reluctant to grant them the power to increase taxes. Inflation, which didn’t change the buying power of people’s income except perhaps to reduce it somewhat, was a stealth tax increase that provided the Government with windfall profits they could spend as they pleased.
Since then, of course, there have been massive changes in the tax laws — “indexing” according to the Consumer Price Index, which claims to keep people in more-or-less equivalent tax brackets when the numbers change but their effective income and outgo doesn’t; “tax reductions” which somehow always end up with more Government revenue; and “simplifications”. Experience hath shewn that when the Congress enacts a “tax simplification” it means adding two pages to the tax forms and ten to the accompanying explanatory pamphlet. The added complexity means most people throw up their hands and hire an accountant specializing in taxes, who can navigate the complexity to find the best deal for the taxpayer because they do it all the time. The very best (and therefore most expensive) of them can find obscure provisions in the tax code that save enormous amounts, and the rich people they serve use the savings to lobby the Congress for more complex and obscure tax provisions.
A few years ago this got a bit too blatant for anyone to ignore, and Congress established the Alternative Minimum Tax. The AMT is based on a very simple model; there are a few fixed deductions, and the rest of it amounts to “send us the money!” It is, in fact, almost as simple to manage as the tax system was for the $10K-20K cohort, lo these many years ago — which makes sense, because that’s who winds up affecting. As a rough guide, take any set of current numbers for wages, salaries, prices, taxes, etc., and divide by 12, and you’ll get something pretty close to what I considered normal before Nixon took office.
So look on the bright side. “Quantitative Easing” will put an ordinary worker now getting by on $50K per year up to half a million dollars, and an engineer or computer programmer now in the low six figures will be a millionaire — which will make ditch-diggers and hammer-swingers into plutocrats paying the Alternative Minimum Tax, and all the messy deductions and complicated tax provisions go away. Don’t think of it as a tax increase. Think of it as the first genuine tax simplification since the 16th Amendment.