Good point Gulnara - I think that would be right if the tax scale was "flat", so the same tax rate was applied to every dollar of income.
However, tax planning means people can avoid the progressivity (rising rates on additional dollars of income) in taxes by smoothing income over time and with other lower income family members.
As the system is designed in general to prevent this smoothing, tax planning behaviour undermines this choice - and due to planning + progressivity this ends up with people who earn the same income paying different amounts of tax.
Great post! You mentioned that tax planning was important, how would that work in this context? Potentials for ETRs seem limited?
Good point Gulnara - I think that would be right if the tax scale was "flat", so the same tax rate was applied to every dollar of income.
However, tax planning means people can avoid the progressivity (rising rates on additional dollars of income) in taxes by smoothing income over time and with other lower income family members.
As the system is designed in general to prevent this smoothing, tax planning behaviour undermines this choice - and due to planning + progressivity this ends up with people who earn the same income paying different amounts of tax.