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I know that when Obama originally threatened the progressive taxation, there was a contingent (I don't really know how large) of people whose incomes were 'on t
by bmelton 14y ago
I know that when Obama originally threatened the progressive taxation, there was a contingent (I don't really know how large) of people whose incomes were 'on the bubble', or had incomes of between (let's say) $250-$255k who would have netted more bring home money by grossing less.
I mean, the 'more money' argument certainly applies once you've crossed the bubble threshold, but if you're making $251,000, if the additional tax is only 1%, that translates to $2,510, which takes your gross to under the $249,999 you could have made and been exempted from the increased tax.
For the self-employed, who have more control over their direct income, it might be more beneficial to take a slight pay cut and come home with more until you're able to give yourself a significant enough raise for it to not matter.
Edit: I've been corrected by others who are more savvy on taxes than myself. I admittedly am not in the >250k tax bracket, but regardless, there is a contingent of people who are also wrong, and are working their taxes in the way I described.
- evgen 14y agoPerhaps you have never actually had to deal with the "incredible crushing burden" of a high tax bracket, but it does not work that way. The tax does not apply to all earnings, only the earnings over a threshold. If you cross the threshold then it is all earnings over that threshold which are taxed at the higher rate; in your example someone who made 251000 would pay the higher rate only on the $1000 over $250000.
- jbooth 14y agoMarginal taxes don't work that way. If the additional tax is 1%, and you make $251,000, then you pay 1% * 1000 = $10 extra compared to not having the tax.
- krakensden 14y agoThat's not how income tax in the US works- each bracket applies to money made over a certain amount, so if you are earning 251,000, you would pay 35% (or maybe 39% in the future) tax only on the $1000 over 250k.
- 0x0 14y agoThat sounds pretty insane, I thought the standard thing for a progressive tax system would be to apply the extra tax% only on the income above the treshold? So an increase in income would never result in a decrease in net income, only a slightly "slower" increase in net income?
- DrPizza 14y agoGood grief. First, marginal tax rates are taxed on marginal income, not gross income. The $250K bracket only kicks in for dollars earned over $250K. Second... there are, in fact, points on the income ladder with a marginal rate that is greater than 100%. But they're not a problem for the rich. They're a problem for the poor. At certain points, the removal of things like food stamps and tax credits can result in a marginal tax rate of greater than 100%, which is to say, you are literally better off making less gross income, because you will have more spending power.