Confessions of a Supply-Side Liberal

A Partisan Nonpartisan Blog

0 notes &

How Marginal Tax Rates Work

Here is an exercise. What is wrong with the way the people quoted below are thinking?

1. Kristina Collins, a chiropractor in McLean, Va., said she and her husband planned to closely monitor the business income from their joint practice to avoid crossing the income threshold for higher taxes outlined by President Obama on earnings above $200,000 for individuals and $250,000 for couples.

Ms. Collins said she felt torn by being near the cutoff line and disappointed that federal tax policy was providing a disincentive to keep expanding a business she founded in 1998.

“If we’re really close and it’s near the end-year, maybe we’ll just close down for a while and go on vacation,” she said.

2. … [the extra money that comes with a raise] “is nice, but it could very well bump you into the next tax bracket, possibly leaving you with less money than you had before the raise.”

For an answer, see the wikipedia entry on “Tax Rate” and Matthew Yglesias’s posts "Nobody Understands How Taxes Work,"  "Tax Whiners Don’t Understand How Marginal Tax Rates Work," and "Tax Ignoramuses."  

Filed under principles class