"Fun With Tax Deductions"
Bruce Bartlett offers this sobering table that illustrates what a mess the current tax code is:
Furthermore, even within income classes of people with roughly similar incomes there is now a crazy quilt of effective rates that vary enormously depending on things like whether one owns a house or rents, whether one has children, how much of one’s income is derived from wages or capital, and various other factors. As one can see in the table below, for those in the middle quintile (20%) of income, 25% had no tax liability or a negative liability while the rest paid between 3.2% and 9% of their income in federal income taxes. Even among the ultra-wealthy, the top 1% of tax filers, effective tax rates vary 10-fold between 2.6% and 26.9%.
I think a fair amount of variation in effective tax rates based on the number of dependent children you have around makes sense. Realistically if John’s a single guy making $65,000 a year and Mary’s trying to raise two kids on $80,000 a year, there’s no reason to think distributive justice that requires Mary to pay a higher tax rate. But for the rest this is very dubious. In particular, the wide array of deductions & credits for people who do this or that, each with their own phase-out points (or not) and different levels of refundability (or not) is a mess.