fatvegan

What would happen if, instead of taxing this year's income, you taxed an average of the last five years income? Stupid politicians and economists say that high marginal tax rates reduce the incentive to work. If they're right, would weakening the immediate link between work and tax encourage people to work more? If you know that you'll get to keep 1-(0.47/5)=90% of extra income in a year, and not have to pay the difference until later. It would also defer payment to a point when incomes were higher, so the effective rate in any given year would be less than the true rate. The government would get the same amount of money (apart from time value losses), and people might work more. Not that I really want people to work more. It would probably also make marginal-rate fiddling types of tax-avoidance harder.

The big problem would be if/when incomes went down. Yes. I can't think of any solution to that problem. Maybe you let people defer the bill. So I pay the maximum of the true rate (47%) and the effective rate (some averaged out number that is usually less, but might be more than 47%). I have to make up the difference when my income increases again. You really just need something that doesn't create perverse incentives to earn very small amounts, and doesn't put too much hardship on people who lose their jobs.