So to talk about smarter taxes we need to start by talking about taxes smarter. When it comes to income taxation, there are no rich people or poor people, there’s only earnings. We tax the dollars earned, not the people earning them. Which means that if a rich person earns 15,000 dollars in one year, they’re in the bottom tax bracket. Even if they have a billion dollars in the bank. We don’t tax wealth, we tax earnings. That’s the way it should be. The government should keep its hands off people’s property. We don’t tax wealth, we tax earnings.

 

So when we talk about “the rich” or “the poor” in a tax conversation, we’re having an irrelevant conversation. We’re distracting ourselves. Even though the effects of those taxes create the rich/poor dichotomy we’re trying to soften. So again, let’s talk smarter.

 

Let’s stop with the rich/poor verbiage when what we’re really referring to is income. And that starts by talking about the dollars earned. Big dollars earned, little dollars earned, and all the dollars earned in between.

 

Right now, all those in-betweens are broken into seven tax brackets. And that ignores the numbers of dollars earned by wrongly favoring the number of earners earning them. We stop our tax brackets at $400,000 or so because not a large percentage of people earn more than that.  But again, we’re not talking about earn-ers we’re talking earn-ings, and the tax revenue that comes from that bracket is over half of all revenue collected. So over half of our dollars earned in America aren’t being further bracketized. Our bottom half of dollars earned are bracketed into six different groups, and our top half isn’t bracketed at all. That’s not smart.

 

In the 1950s, under Eisenhower, there were 24 tax brackets. Over three times more than we have now. And currently we stop around $400,000. Why is the 500,000th dollar earned taxed the same amount as the 5,000,000th dollar earned? Or the 50,000,000th? That’s bad economics. With over half of America’s dollars earned coming in over our top threshold, we’re ignoring half of our tax revenue pool.

 

(And that incentivizes fewer salaries in higher brackets, which is what is creating our wage gap. Keep reading.)

 

If Eisenhower had 24 brackets and we now have seven, I propose we split the difference. Let’s continue adding tax brackets above our current top threshold. Dollars earned above 800,000, let’s say, get taxed at 5% more. And dollars earned above 1.5 million get taxed at 5% more. And above 3 million dollars get taxed at 5% more. And so on and so on, roughly doubling the window for dollar earnings as we increase the percentage of taxation. So now the 50 millionth dollar earned is being taxed at 35% more than the 500,000th. See? Smarter.

 

Now at a cursory glance though, there aren’t many people earning 50 million dollars a year so creating a tax bracket for those few people seems like it doesn't affect much. That’s the faulty “earners-instead-of-earnings”  thought paradigm that has created the taxation mess we’re in. Because every 50 million dollar salary has the same dollars total as one thousand 50 thousand dollar salaries. (One employee versus 1,000 employees.) So in terms of dollars earned, it’s extremely significant to our tax revenue.

 

And it’s even more significant to the way our economy and salary allocation operates.

 

So let’s step away from the tax code and look at the math of salaries for a given business. If a 50,000,000 dollar salary (one employee) has the same dollars as one thousand 50,000 dollar salaries (50 employees), then every time a CEO gets paid 50,000,000 dollars that business is choosing his one job over 1,000 other new jobs. Or 500 six figure jobs. And they can do that because the current system doesn’t create adverse value for them to do it.

 

But if the top half of that 50 million dollar salary is taxed at 75% and the top half of a one hundred thousand dollar salary is taxed at 30%, then the after tax result of those salaries yields almost two and a half times more cash value when you spread the pay around to multiple employees instead of just one (25% vs. 70%.)

 

Even though it costs the business the same 50 million dollars, paying 500 people that money instead of one person that money creates over 230% more value for them. 

 

And businesses love value. Because by continuing to tax dollars earned at higher rates we’re incentivizing businesses to invest their money in more middle and upper class wages, not fewer super-class wages. Our current system incentivizes the opposite.

 

But I told you I was going to raise your salary and lower your tax rate, didn’t I?

 

Well, more jobs means lower unemployment. Lower unemployment means more competitive packages. More competition means a raise in your salary. Salaries go up when unemployment goes down. The free market.

 

So why would your tax rate go down? Good question. The stronger our work force is, the more people we have in our tax pool. Right now about a quarter of our population pays no taxes, because they don’t earn enough money. By introducing them back into the tax pool we make room to lower our starting percentage and lower the rate on most current brackets. So, plainly, we lower your tax rate. For all tax rates below $400,000 or so.

 

A system might look like the one below. More brackets than the system we have, half as many brackets as Eisenhower had. And no dollar is being taxed at a higher rate than it currently is until the 800,000th dollar earned. (And spoiler alert: 99% of Americans don’t earn 800,000 dollars.)

 

$>25k               5%

$25k               15%

$50K               25%

$100K             30%

$200K             35%

$400K             40%

$800k             45%

$1.5M             50%

$3M                55%

$6M                60%

$12M              65%

$25M              70%

$50M+            75%

 

There you have it. Tax the dollar not the earner. Do it smarter. And with just a little hint from a great Republican President, bingo-bango: 99% of Americans are being taxed less and earning more.

 

Let’s do something.