Abstract
In most countries, a progressive tax is levied on the income of individuals. This article addresses the different design of a progressive tax scale taking into account the issue of the so-called tax bubbles that constitute an increased MTR. This feature of the tax function is a result of the exclusion of the high income taxpayers from the basic allowance or reduced tax rates. As shown in the article, this may lead to a higher tax burden under the joint taxation compared to the separate taxation. The analysis refers to the tax scales in Germany, Poland, the UK and the USA.
Highlights
The personal income tax is usually progressive and based on a marginal tax rate (MTR) that increases in steps [Johansen, 1965, p. 213]
The Polish tax scale is analysed by taking into consideration the introduced MTR bubbles (Section 3)
This is usually fulfilled, since in most countries the tax scale is based on a MTR that increases in steps for the consecutive income tax brackets [Seidl, Pogorelskiy, Traub, 2013, p. 8; Endres, Spengel, 2015, p. 76; IBFD, 2016b]
Summary
The personal income tax is usually progressive and based on a marginal tax rate (MTR) that increases in steps [Johansen, 1965, p. 213]. Tax privileges in the form of the basic allowance or a reduced tax rate are phased out and not provided for a higher income. This leads to an increased MTR within the interval of the expiring tax allowance (the so-called “bubble”). The purpose of this article is to present different approaches regarding the design of a progressive tax function (Section 1). Against this background, the German tax scale is outlined as an example of a linear increasing MTR (Section 2).
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