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November 12th, 2013
How Marginal Tax Rates Work
Discussion (13)¬
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I think I lean very much toward socialism, without actually being there yet.
http://www.isidewith.com/political-quiz
Often, when I disagree with a person who is touting Republican propaganda, I am accused of being a Communist. When I say I care if poor people and pre-conditions individuals get health care, I'm also called a communist.
People in high tax brackets also have high deductions, exemptions, corporate welfare that essentially lowers their tax liability, usually very substantially.
I never knew how the taxes worked. I don't like it, but this made it quite clear and confusing at the same time. There's got to be an easier system for our taxes.
When you're dealing with incomes which are significant multiples of the breakpoint for the highest tax bracket, the "very top part of your income" is "most of your income". If you had used a hypothetical 50% bracket for incomes over $1 million, the tax on $1.5 million wouldn't be anywhere near half but the tax on $10 million will be quite close to half.
Why do we tax INCOME alone, and not wealth, anyway? Maybe because the "old money" interests who control the ideology of both parties want to preserve what they have while keeping the "club" exclusive.
If the top 2012 marginal rate was raised to 50% he'd take home $5,022,239.00 (filing as single) I'm pretty sure even the Communist Manifesto would round that to "$5 Million"
You can double check me on page 91 of the 1040 instructions.
"Sophistry at Work" would have been a better title for this strip.
@ Greg P: it sure looks like Nathan's explanation above "take home $5,141,452" is a lot closer to the "correct answer" … about $119K more "take home" than your result … that's a nice big bonus …
This is the best brief explanation I have ever read. Congratulations! I tried to write one myself, but yours is better—and I'm a retired English professor. Thanks, from a long-time admirer of your strip
Robert Stanton
But it is exactly how math works in practice. Suppose for the sake of argument that a new 50% tax were imposed on earnings above $1 million. Then your income would be taxed at 50% on the $9 million you made above $1 million, or $4.5 million in taxes. Your income less than $1 million, taxed under the existing tax bracket would come to $358,548. So you would pay a total of $4,858,548 in taxes and take home $5,141,452, which is $5 million to the nearest significant figure.
I'd think $141,152 is a pretty significant figure to most people…
Nonsense. You say that $5,141,452 "is $5 million to the nearest significant figure." According to the Wikipedia article on "significant figures," "All non-zero digits are considered significant. For example, 91 has two significant figures (9 and 1), while 123.45 has five significant figures (1, 2, 3, 4 and 5)." To us ordinary people, $141,452 is not peanuts.
Lamont's point is that the 50% tax rate applies only to the income in the top bracket, not to the entire income. If the income is huge, obviously a lot of money will be in the top bracket. This distinction is not trivial.