Monday, October 05, 2020

Do you make 400k a year?

 From Reddit:

level 1
3.7k points·10 hours ago
GoldThisRocket Like2Helpful6

And also, people should remember that income is taxes in a bracketed fashion in the United States. This means that only your income above $400k will be subject to any higher taxation:

Example: this is oversimplification for purposes of illustration, but say all income you make up to $400,000 is taxed at a flat 20% rate. Additionally, let's say the new Biden tax plan assesses any income above that at a 30% rate.

Say Bill makes right up to the limit of $400,000/year, and his neighbor, Julie makes $500,000/year.

Bill's taxes, without any deductions, would be $80,000 leaving him $320,000 net income.

Julie's taxes would also be $80,000 for the first $400,000 she earned, and an additional $30,000 for the additional $100,000 she earned above that. Julie's taxes would be $110,000, before any deductions, leaving her with $390,000 net income.

What doesn't happen is that when a person makes a single dollar more then the limit, their entire income gets taxed at the higher rate. That would be ridiculously unfair. If Julie had to pay 30% on all $500,000 she would be taxed $150,000, leaving her with a net income of only $350,000 which is only $30,000 more than Bill despite earning a gross salary of $100,000 more than he does. No one is suggesting we switch to such a punitive tax rate.

1 comment:

Daniel Becker said...

If I may, I posted in 2012 on this very subject. I reconstructed the 1936 tax table to make the point clear as to just how far we have gone from understanding the concept of progressive taxation.

Here is my post: