"A notch in a tax schedule exists if a small change in behavior—such as the addition of a window—leads to a large change in tax liability. Notches are rare (Slemrod 2010) and not to be confused with kinks, which are far more common even today. A kink in a tax schedule exists if a small change in behavior leads to a large change in the marginal tax rate but just a small change in tax liability. The income tax in the United States, for example, has several kinks. Married couples with taxable income from $17,850 to $72,500 are in the 15 percent marginal tax bracket; couples with taxable income from $72,500 to $146,400 are in the 25 percent marginal tax bracket. If a couple with income of $72,500 were to earn an extra dollar, its marginal tax rate would jump to 25 percent, but its tax liability would increase
by just $.25."
I've never heard of notches or kinks in this context before. They seem like a useful concept and assuming these are plausible definitions, yay. But I don't know whether I can trust them, because of the example given. The hypothetical couple would pay a quarter on that last dollar, true. However, the _increase_ over what they would have paid if they had stayed in the 15% bracket is a dime. I would think that the "kink" of moving from one bracket to the other, in this case, should be characterized as ten cents over what they would have paid without that kink -- not 25c.
It's a somewhat interesting article. I knew about the window tax. I did _not_ know how it differentially impacted multi family vs single family dwellings. The English tax code was truly evil.
Wow. The conclusion of that article is just about the silliest thing imaginable:
"The ideal, in principle, is a neutral tax that raises the desired revenues but doesn’t distort taxpayer behavior so as to create additional burdens. Such a tax is a pure land-value tax levied on the site value of the land—that is, its value with no improvements. Thus, the assessed value of the land (and hence the tax liability of the owner) is completely independent of any decisions made by the owner of the land parcel. Unlike the window tax, which provides a compelling example of the additional costs that arise when property tax liabilities depend on the behavior of the property owner, a land-value tax creates no incentives for tax-avoiding behavior."
Let's think about this. If the tax is purely based on the value of the land -- not on whatever the hell you do with it, that would appear to encourage people to reduce the amount of land they own to an absolute minimum. The argument is that land + improvement taxes _discourage_ improvements leading to very low intensity/low density use of land. But a land-only tax would have the opposite effect: leading to hyper intensity/super high density use of land, far beyond what the taxed population might or might not actually want absent the tax.
I'm now sitting here thinking, for the first time ever, whether I want to keep pretending that I like reading Lincoln Institute articles. I _used_ to. But I'm not sure I do any more.