Tax Bracket Creep

The Australian tax brackets are skewed. They are designed to extract a single tax rate of thirty cents in the dollar from nearly sixty-three per cent of the population. Those that earn $20,000 now rise quickly into that tax bracket and then remain there. With salary inflation it also appears that the forty-two cents in the dollar is set to catch a large number of Australians earning in the $40,000 to $50,000 range.

Salary earners in the range $20,000 to $40,000 need to be removed from the 30% tax bracket. The 42% tax bracket also need to be raised higher so bracket creep doesnt catch a large number of income earners.

Graphs On Tax Per Income Bracket

The data was taken from the Taxation Statistics 2002-03. These graphs were constructed from the data in Table 5, Part A: Tax Office calculated and miscellaneous items [XLS warning]. The personal tax payable includes the Medicare Levy and other taxes but which don't appear to include capital gains.

From the data it seems to count only 8.6 million tax payers. Is this a real number?

The first graph shows the number of taxpayers per income bracket. The curve rises near the 20K-30K before dipping and rising at 40K-50K. The largest tax accruing tax bracket is between $21,601 and $58,000 . It is designed to catch all these people.

From the number of taxpayers, the 21K-58K bracket approximately contains 63% of taxpayers. This is inequitable and unprogressive in my opinion.

The amount of tax payable is not evenly distributed either. The area to note is the amount of tax those earning between 20K and 40K pay. I would say these folk need tax relief and the 30% tax bracket needs to be raised to the 40K level.

The current tax system is set up to tax at 42% in the small range 58K - 70K. Those earning 40K-50K are rapidly inflating toward that bracket. Another example of bracket creep.

Those that earnt more than $100,000 werent included on the graph as their individual contributions were high and hide the difference between income earners in the 20K - 80K range.

cam
Permalink, Tax Bracket Creep, Apr 2005, cam
siento: Hang on: What do you mean when you say that the fact that the income bracket 20-58K contains 63% of tax payers in inequitable. Isn\'t it just the way it is? Why shouldn\'t people earn that much money?

The tax payable graph is also weird. What is the left hand scale? It looks like people on 20-25K pay 200 000 000 in tax.

And what is the scale on the tax burden? What does 500 mean on the left?
cam: Bracket:

What do you mean when you say that the fact that the income bracket 20-58K contains 63% of tax payers in inequitable. Isn\'t it just the way it is? Why shouldn\'t people earn that much money?

I dont think it is fair that a progressive system has 63% of taxpayers in one bracket. If it contains so many people that bracket should be split into three and some tax relief given to those at the lower end of that bracket.

Having one massive bracket designed to catch over half of the taxpaying population looks like bracket creep to me.

As to the tax payable, the gross tax for the 20K-25K says it is $2,852,151,316 ... I am only going by what is on that spreadsheet.

The left scale on the third graph is the (payable tax)/(number of people in the income bracket).

cam
siento: Right: The comment about tax payers now makes sense. Introducing more brackets makes it a little more complicated though.

OK, I understand the gross statement now.

But the final graph seems to indicate that somehow people are paying very little tax. It seems a little odd at least. Does it mean the average 60-80K earning tax payer only pays $2000?  
monkeymind: Tax and Hecs: One thing that has always pissed me off is that while it is possible to index hecs debts to the cost of living automatically each year the tax rates are static and not indexed.
ranomatic: From the raw data: the net tax for $60,000-$80,000 income is $13,491,610,227 with a total of 678,249 taxpayers.  This should equate to around $20,000 tax per taxpayer.  The chart Cam posted seems to be based on the tax payable row in the raw data.

That spreadsheet is confusing.
ranomatic: Salary Inflation: Looks like salary inflation wont be a problem after all.  The plan is to increase the top bracket to $125,000 by July of next year.
 
cam: That is necessary: ... but it looks like the 30c in the dollar bracket will still have a 21K entry point. The top half are getting relief but the 63% stuck in the 30c in the dollar bracket will remain stuck in there rather than getting relief.

I will run the numbers again on the new tax brackets once I see concrete data on the new tax brackets.

cam
avocadia: The consensus appears to be that...:

…the tax breaks are a sop thrown to the ginger group to curry votes in a party-room showdown.

I get the feeling that Costello is doing a Bush in some respects; the idea that tax breaks to the rich will provide enough economic impetus to make up for unmet infrastructure  and skills training needs. I\'d be inclined to support that idea if it was aimed at the people who don\'t already have the disposable cash to dump into the economy.
cam: Not genuine reform then: .. but instead a political purchase from Australia\'s most tax hungry government ever.

cam
avocadia: Reform: Genuine reform? Not really. Charitably you could describe it as nibbling at the edges.
ranomatic: Doing a Bush: Back in the day, when Ronald Reagan was running for the Republican presidential nomination against George H. W. Bush, Bush called Reagan\'s supply-side economics plan \"voodoo economics.\"  I don\'t think Bush ever believed in it, even after he became Reagan\'s VP.  George W. Bush, unlike his father, buys into supply side thinking.  Maybe he keeps a black cat bone and a mojo hand to ward off the bad juju.

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