Income tax in Belhavia

In the Empire of Belhavia, a tax regime under which the Imperial government levied an income tax on ordinary income and wages and salaries existed from 1957 until 1986. From its creation until the late 1960s, the income tax regime was progressive but with few brackets and a top rate of nearly 29%. In 1969, the number of tax brackets expanded into at least half a dozen or more depending on the year with a top rate of 55%. In the late 1970s, the top rate hit 72.4%. In the early 1980s, the tax regime was reformed, cut, and simplified, and then phrased out by 1986 and replaced by the National Retail Sales Tax in its place. Since the 25th constitutional amendment taking effect in 1986, the income tax was abolished and has become unconstitutional under Belhavian constitutional law.

History

Post-Galarian era

Main articles: Provisional Government of Belhavia and Matthew Rabin

After the fall of Galarian in late May 1945, the new Provisional Government of Belhavia under provisional, and then elected, President Matthew Rabin considered an income-tax proposal both during the 1945 Provisa Convention and early into his presidency. However, both the Convention and Rabin's domestic policy advisers rejected the proposal as too radical and constitutionally uncertain.

Rabin's Vice-President and successor, Yavin Leibniz, and a circle of reformist liberals in the Provisional Assembly, and later the restored Imperial Senate, supported the proposal as a needed revenue-raiser and for equity concerns. They started a movement with the Liberal Democratic Party to advocate and promote the idea. In 1955, after the collapse of the conservative opposition Federalists and gaining political domination in the Senate, Leibniz and his allies passed a constitutional amendment through the Senate and by 1957, through a majority of the provinces, ratifying the right to levy a tax on incomes.

In 1957, Leibniz's administration drafted a tax plan with three brackets - 5.6%, 19.5%, and a top rate of 33.8%. It passed in the Senate and was adopted in October of that year.

Reforms in the early 1960s

In January 1961, President Edward Kalian took office after winning the 1960 presidential election in part on his tax reform campaign pledge to simplify and lower the new income-tax regime. His Tories retook a majority in the Senate, their strongest since the late 1920s, and by April 1961, his reform plan passed and was signed into law. His tax plan lowered the bottom rate to a flat 3%, the middle rate to 15.75%, and the top rate to 28.9%, and rose the ceiling of taxable income for the middle rate across the tax categories by a flat $15,000, reducing the number of persons and families who were eligible for the top rate.

In 1967, after having won a new majority in the Senate in the 1966 midterms, the Liberal Democrats pushed through a tax bill over Kalian's repeated vetoes that created a new, intermediate "upper middle" tax bracket of 20.25% which divided the 15.75%'s tax base between it and the new bracket. The bill also lowered the top rate's threshold across the tax categories by $5,000.

Callan-Levine era

President Vern Callan narrowly won the presidency in 1968, although his Lib Dems increased their majority in the Senate. In early 1969, after his inauguration, Callan outlined a bold honeymoon "Just Society" program of strongly left-wing policies, including comprehensive tax reform legislation that would expand the number of tax brackets, raise rates at each tax level, and create a new top rate of 45.9%.

This ambitious program was widely-panned by center-right establishment and more right-wing elements quickly became convinced that Callan was a harbinger of socialism into Belhavia, and by March 1969 the Ben-David Incident erupted. In the aftermath of the defeated far-right coup, Callan rallied public support and drastically increased his political capital, which he spent on passing his Just Society program, including his 1969 tax proposal, but increased the scope of the bills such as passing his plan with a new, higher top tax rate of 55.5%.

Fallout from the 1969 tax reform

The across-the-board tax increases and hefty tax loads sparked a capital flight from many major investors and financial institutions, and they moved offshore to tax havens and friendly economic conditions such as the URE, Tippercommon, Lion's Rock, and militarist Eagleland. The flight of investment capital turned into a capital strike, and many financial sector types, economists, and businesspeople left for better conditions abroad.

A 1978 report by the non-partisan Center for Continuing Economic Studies argued that the 1969 tax changes, combined with the Callan Currency Crisis, Rodar-Belhavian crisis of 1970-71, and the capital flight-and-strike between 1969 and 1971 all substantially contributed to, or caused, the Recession of 1971, which lasted until 1974. However, liberal economists dispute that the 1969 tax increases contributed to the recession, and have argued that the tax changes helped cause a small dip in income inequality in the mid-1970s, a claim other economists fervently reject.

Levine-era tax increases

In early 1977, using his narrow election as a so-called "third term" of Vern Callan, President Berel Levine pushed an even stronger fiscal liberal agenda than his predecessor. In his political honeymoon in 1977 with a stable near-supermajority of his Liberal Democratic Party in the Imperial Senate. In March 1977, he raised the top marginal income tax rate from 55.5% to 72.4% and raising the second-highest bracket from 43.65% to 48.2%.

In April 1979, a brewing mutiny within some of his party's own ranks and contempt within both parties at the high tax rates and concordant sluggish economic environment of the Empire-wide economy spewed onto the Senate floor where all 27 Tories, 2 Libertarians, 1 Independent, and 12 Liberal Democrats formed a coalition and passed a bill repealing his March 1977 tax increases, having achieved 44 votes (2 more necessary than 42 votes, the 60% threshold to force cloture and defeat a filibuster) and preventing a filibuster by more left-wing Lib Dems loyal to Levine. However, Levine vetoed the bill, and the anti-tax coalition lacked 2 more votes to overturn the president's veto (requiring a supermajority vote of 65%, or 46 votes out of 70).

Settas era: reforms, cuts, repeal

In the 1980 presidential election, Imperial Senator Julian Settas (C-Provisa) decisively defeated sitting incumbent Liberal Democratic President Berel Levine by a 55%-43% margin, and entered office with a large electoral mandate.

One of his earliest reforms amid the so-called "Settas Revolution" was a tax-swap bill replacing the income-tax with a "national retail sales tax" consumption levy regime. In April 1981, the bill passed. It had a multiyear, multi-tiered approach: in order to prevent the possibility of a future time which had both a national sales tax and income tax, the income tax-authorizing 21st constitutional amendment had to be repealed. A lengthy process, until it was, the income-tax was condensed into 2 brackets: 10% and 20% for two years, and then collapsed further into a flat rate of 10% in 1983. When the 21st amendment was repealed with the 25th amendment in 1986, the income tax was abolished and a national retail sales tax with a flat rate of 25% was levied in its place.

Basics

Income tax rates for individuals

Marginal tax rates in 1957

Marginal Tax Rate	Single Taxable Income	Married Filing Jointly or Qualified Widow(er) Taxable Income	Married Filing Separately Taxable Income	Head of Household Taxable Income
5.6%	$0 – $19,500	$0 – $39,000	$0 – $32,750	$0 – $35,999
19.5%	$19,501 – $75,999	$39,001 – $95,450	$32,751 – $67,750	$36,000 – $81,999
33.8%	$76,000 +	$95,451 +	$67,751 +	$82,000 +

Marginal tax rates in 1961

Marginal Tax Rate	Single Taxable Income	Married Filing Jointly or Qualified Widow(er) Taxable Income	Married Filing Separately Taxable Income	Head of Household Taxable Income
3.0%	$0 – $19,500	$0 – $39,000	$0 – $32,750	$0 – $35,999
15.75%	$19,501 – $90,999	$39,001 – $110,450	$32,751 – $82,750	$36,000 – $96,999
28.9%	$91,000 +	$110,451 +	$82,751 +	$97,000 +

Marginal tax rates in 1969

Marginal Tax Rate	Single Taxable Income	Married Filing Jointly or Qualified Widow(er) Taxable Income	Married Filing Separately Taxable Income	Head of Household Taxable Income
12.3%	$0 – $5,500	$0 – $14,750	$0 – $9,250	$0 – $7,500
15.75%	$5,501 – $19,999	$14,751 – $29,990	$9,250 – $23,450	$7,501 – $21,950
20.25%	$20,000 – $35,999	$29,991 – $45,999	$23,451 – $35,850	$21,951 – $35,900
26.75%	$36,000 – $51,000	$46,000 – $61,000	$35,851 – $47,999	$35,901 – $48,750
31.9%	$51,001 – $66,000	$61,001 – $76,000	$48,000 – $59,999	$48,751 – $62,750
37.5%	$66,001 – $90,500	$76,001 – $100,000	$62,751 – $82,999	$62,751 - $84,000
43.65%	$90,501 – $150,000	$100,001 – $159,500	$83,000 – $123,999	$84,001 – 134,500
55.5%	$150,001 +	$159,501 +	$124,000 +	$134,501 +

Marginal tax rates in 1977

Marginal Tax Rate	Single Taxable Income	Married Filing Jointly or Qualified Widow(er) Taxable Income	Married Filing Separately Taxable Income	Head of Household Taxable Income
12.3%	$0 – $5,500	$0 – $14,750	$0 – $9,250	$0 – $7,500
15.75%	$5,501 – $19,999	$14,751 – $29,990	$9,250 – $23,450	$7,501 – $21,950
20.25%	$20,000 – $35,999	$29,991 – $45,999	$23,451 – $35,850	$21,951 – $35,900
26.75%	$36,000 – $51,000	$46,000 – $61,000	$35,851 – $47,999	$35,901 – $48,750
31.9%	$51,001 – $66,000	$61,001 – $76,000	$48,000 – $59,999	$48,751 – $62,750
37.5%	$66,001 – $90,500	$76,001 – $100,000	$62,751 – $82,999	$62,751 - $84,000
48.2%	$90,501 – $150,000	$100,001 – $159,500	$83,000 – $123,999	$84,001 – 134,500
72.4%	$150,001 +	$159,501 +	$124,000 +	$134,501 +

Marginal tax rates in 1981

Marginal Tax Rate	Single Taxable Income	Married Filing Jointly or Qualified Widow(er) Taxable Income	Married Filing Separately Taxable Income	Head of Household Taxable Income
10.0%	$0 – $75,000	$0 – $90,000	$0 – $68,500	$0 – $82,500
20.0%	$75,001 +	$90,001 +	$68,501 +	$82,501 +

See also

• Taxation in Belhavia