Cumulative Income Tax

Progressive income taxes are very normal in the modern world. But they have a number of artifacts that don't make sense. I want to point some of them out and propose a solution.

Problems

They reward you for starting and ending your career in July. America has a roughly 10% income tax up to 50k and then 20% up to 100k income tax. So a person who makes 100k throughout a 30y career ends up with a 5k higher tax burden if they start their career in January than if they start their career in July. There are lots of such arbitrary thresholds that can occur e.g. if you get married a month earlier than someone married in January you get to file married a whole extra year, you're better off buying a house in January to maximize your deduction for interest paid, etc.

They punish you for having a swingy career and reward consistency. If you work a 100k job for a year and then spend a year unemployed you pay more in taxes than if you work 50k for two years in a row.

Optimizing them requires knowledge of the future. Whether a Roth or traditional IRA is better depends on whether your income is higher or lower in retirement.

They're intuitively unfair. They place an equal tax burden on people just starting out living independently and people who have cumulatively earned millions of dollars. An individual making 200k out of college is obviously set up to have a comfortable wealthy life. But lots of people burn out of high pressure jobs. If they just work at a high salary for a year or two and then burn out, take some time off, and settle at a lower paying job it doesn't seem progressive to have taxed them at a higher rate.

Solution

All these problems would be fixed by a cumulative income tax. That is a dollar is taxed not by which number dollar it is you've earned that year but by which number dollar it is you've earned throughout your life. A simple version would be to take the existing brackets and multiply them by 30 so the first 372k you make is taxed at 10%, the next 1.1m is taxed at 12%, the next 2m is taxed at 22% and so on. Though probably if we did switch to such a system we'd want to smooth out the brackets so tax bills don't double in a year where you hit the next bracket. Something like 10% up to 300k then increasing by 1% every 300k up to 40% which you'd hit at 9m lifetime earnings.

Deductions

Deductions can also be computed cumulatively and you can be taxed on your cumulative income minus your cumulative deductions. This becomes a lot more fair and efficient than the current system where your deductions can't get ahead of your income and people in higher tax brackets benefit more from deductions. People are essentially incentivized to delay home ownership and parenthood to get the deductions later in life when they will have higher incomes.

Marriage gets a little complicated. I think the cleanest handling is you can attribute your income to your spouse for tax purposes so after marriage to a nonworking person your tax bracket resets to 10% until you work it back up. Or if both partners have the same income your taxes are unchanged.

Transitions

Any policy proposal needs to answer two questions:

1. Even if the new system would be better how can we transition from the current system to it?

2. How does the system support being endlessly fiddled with?

(1) isn't so difficult. For every citizen we'd compute the total amount of taxes they've paid and their total income minus deductions. This system pushes tax burden to later life so most people would be ahead of their tax obligations and further collection would be paused until they caught up. Some people may be behind. We could collect an additional 5% on top until they've caught up.

(2) The biggest thing one would want to do with this system is adjust the brackets for inflation. This will always increase them so reduce taxes owed. As in (1) collection can be paused until the citizen's income has caught up. Raising taxes will be more difficult and I don't have a good solution for that.

Misc

• State income taxes get even more complicated. The obvious solution is to not have them. Works for Washington. I'm not sure the United States needs over 150 different tax brackets. Since states seem to like them the obvious solution would be for them to also have cumulative income taxes but only collect on the dollars earned in their jurisdiction.
• Withholdings can no longer be easily estimated by your employer since they are a function of your total income not your annual income. Perhaps everyone's income could go through a central service that tracks the dollar count and also allows you to report new deductions.
• I showed an early version of this post to Fable and it pointed out the ideas were mostly not new and proposed by William Vickrey in 1947. Opus 5 didn't even understand the proposal was path independent. So add that to your benchmarks.