Income averaging

[JHB]

Something I haven't seen in some of the threads about "what do you think proper tax levels are?" is something I've heard of called (I think) income averaging.

The idea (before abuses twist it around) is for people whose incomes aren't nice, neat, and steady (such as authors, inventors, etc. who might make a lot of money one year after a big sale but very little the next) or who have a one-time windfall average their income over several years so that a high marginal tax rate doesn't exessively eat away at their earnings.

Would this be a good idea to include? Would it be too easy to abuse? How might it be implemented?

[denverbill]

1. It used to be part of the tax code.

I think it was eliminated under Saint Ronnie.

Seems like a good idea to me. It happens often enough that someone gets a big windfall one year and pays through the nose, or someone loses their job and can't find a new one.

[SoCalDem]

3. Lots of "middle class" goodies were done away with by Ron

Kids..did you know that you used to be able to deduct ALL interest paid??

Car loans, school loans, credit cards, ALL interest.. The logic was that since you had to PAY taxes on interest earned, you should get to deduct interest PAID..

There were renter credits...income averaging... and some others too..

At the SAME time that these "went away", we boomers were hit with the Social Security two by four.. You see, the way we were "sold" this, was that by GIVING UP deductions, AND prepaying huge increases in our social security deductions, we would be assuriing that there would be plenty of money for US, and we could see to it that our grandparents and parents had decent social secuirty benefits..

We were willing to sacrifice, at JUST THE PRECISE moment in OUR working careers, when we would have started those long term savings plans...except for the fact that with relatively lousy pay, THREE recessions, 15% PLUS interest rates to buy houses, AND starting families, we just barely had enough to get by on..... well you can see the problem here, can't you???

The "tax code" has always been rather difficult for "ordinary people"..and it's not gonna get "better"..so don't waste much time planning for it.. Every "fix", has been a tweak here and there, and nothing to help us..Just as the $300 "paycheck loans" did not invigorate the economy, there is little to be done that will really help, because ..the GOVERNMENT NEEDS OUR MONEY, and they are not about to give it up..

[denverbill]

4. Yep.

That extra 1% SS tax was going to be saved up and used when us baby boomers hit retirement.

Instead, everyone making less than $80,000 is being charged an extra 1% tax for SS that is being used to fund general expenses, like the war on terra. The next tax cut should be SS taxes. If they aren't being used to fund SS benefits, and they aren't being saved for the future, then we are being screwed big-time.

[ProfessorGAC]

2. It's Not Too Easy To Abuse

It required several years of averaging on both ends. One needed to maintain accurate and consistent records over that whole period. So, abusing it wouldn't be easy since there would be a paper trail a mile long.
The Professor

[Blue Wally]

5. Income averaging

I did it all though the seventies. Inflation was the reason. I(nflation was driving us into higher and higher tax brackets. with the brackets not as steeply graduated under the 1986 tax reductions, the advantages of income averaging went away.