Here's how the system works for US Federal income tax: The tax structure is divided into brackets. As of now (2009), the brackets are 10%, 15%, 25%, 28%, 33%,

Here's how the system works for US Federal income tax: The tax structure is divided into brackets. As of now (2009), the brackets are 10%, 15%, 25%, 28%, 33%, and 35%. Each bracket has a cap, except for the top one; the caps range from $8,000 for the 10% bracket up to $358,000 for the 33% bracket (for single taxpayers, married taxpayers have different caps). Any income you earn under the cap is taxed at that rate. Any income you earn over the cap spills over into the next bracket, and is taxed at the next rate. As an example, suppose that last year, you made $100,000, you're single, and you take the standard deduction. The current standard deduction is $5,000, so that reduces your taxable income to $95,000. The first $8,000 dollars that you earn is under the 10% cap, and so it's taxed at a rate of 10%. Since you earned more than that, you spill over into the other brackets; the next $24,000 you earn is taxed at 15%, the next $46,000 after that spills over into the third bracket and is taxed at 25%, and the final $16,000 is taxed at 28%. All together, your taxes are: $8,000 * 0.10 + $24,000 * 0.15 + $46,000 * 0.25 + $16,000 * 0.28 = $20,380 (The actual figure is $20,578, but I rounded.) Hence, even though the tax rate on the last dollar you earn is 28%, you only pay 20.4% of your total income in taxes. What Obama wants to do is rearrange the brackets so that, if you earn any income above $250,000, the income that spills over into the top brackets will be taxed at a 3% higher rate. Suppose you made $300,000 last year. $50,000 spills over into the $250,000 bracket, and so you pay 3% of extra tax on $50,000, or $1,500. Which, if you make $300,000 a year, is roughly a day's pay.