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ETpro's avatar

Do tax "whiners" understand how marginal tax rates work?

Asked by ETpro (34217 points ) November 21st, 2012

Consider chiropractor, Kristina Collins of McCLean, VA who said that if Obama’s proposed increase in marginal rates on incomes over $250,000 per year passed, she would monitor her income closely and stop working before passing that threshold. That means she either has no idea how marginal tax rates actually work, or she’s insane. In case you don’t know why that is, this article in Slate will explain it. Do you think most of the tax rebels who claim progressive taxes are unfair are like Ms. Collins, unaware of the workings of the system they are criticizing? ow can we educate Americans on the benefits and fairness of progressive taxation?

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46 Answers

Pandora's avatar

Nope, it would mean they would have to read instead of depending on Fox news for the fake headlines.

Tropical_Willie's avatar

I think I know why Kristina did not become an accountant.

ragingloli's avatar

Consider chiropractor
Why should I consider someone who practices fraud?

augustlan's avatar

I truly think that most people don’t understand our tax system. I know I didn’t, for years. It seems like something we should be teaching in high school, if you ask me. Basic economics would go a long way in better preparing students to function in the adult world.

Linda_Owl's avatar

The tax laws in the United States are hundreds of pages long, so it is not surprising to me to know that a great many people do not understand our tax laws. A person needs to specialize in our tax laws in order to fully understand these laws – this is the reason that businesses exist to help us when we complete our tax forms, especially where businesses are concerned. To deliberately close down one’s business in order to try to avoid paying higher taxes is ridiculous. In order to continue to grow one’s business, wouldn’t it be far better to be willing to pay a little more in taxes than to shut down one’s business & have your customers go somewhere else? This is akin to ‘cutting your nose off in order to spite your face’!

jaytkay's avatar

Very few people understand marginal tax rates.

Try this – tell a bunch of people the fact that “your income after taxes does not go down when you cross over into a higher tax bracket”.

I bet most people will disbelieve you.

bkcunningham's avatar

Your income doesn’t go down, but what you get to hang onto sure does.

glacial's avatar

@bkcunningham The tax rate is higher within the higher tax bracket, but you still get to “hang onto” more money than if you were in the lower tax bracket. You bring home more money. That’s the whole point of the details @ETpro posted in this question.

bkcunningham's avatar

I was referring to @jaytkay‘s post, @glacial. But thank you. Are you saying, @glacial, because you earn more you get bring home more money? What an amazing concept! btw, Happy Thanksgiving!

JLeslie's avatar

The whiners and non-whiners don’t understand. I would guess 70% of America doesn’t understand. Just a guess based on talking to friends, and on fluther and facebook.

Jaxk's avatar

Maybe it is Slate that doesn’t quite understand the point. The more money you earn the less of that you get to keep. So for the first few weeks you get to keep all of your wages. As your income rises over the year you keep less and less. I’m not sure of the tax rates in Va so I’ll use Ca for an example. Ca state income tax rate now goes up to 13.5% so that is in addition to federal tax. Say she earns $100/hr for her services. At the beginning of the year she is keeping $100/hr. By the time she reaches $250k she now is only keeping $47/hr or slightly less than half what her services are worth. It is easy to see how she may not think it is worth working for less than half what she feels she should be making. Think about it like this. Say you are an average schmuck making $20/hr ($800/wk). Your company tells you that you can take off the whole month of December without pay or you can continue to work but if you decide to work you will only be paid $10/hr ($400/wk). Would you be willing to work the same job, the same hours, for half the pay? Some would some wouldn’t. That is exactly what Kristina Collins is deciding.

It’s not that she doesn’t understand the tax code, it’s that Slate doesn’t understand the issue. Or is distorting it for your entertainment.

ETpro's avatar

@Pandora Quite likely so.

@Tropical_Willie Ha! Good point.

@ragingloli How true.

@augustlan It would be a great idea to teach at least the basics of our tax system. Certainly, people should know that it is dunderhead to stop earning money part way through the year to avoid moving into a higher bracket. They are deliberately losing money they could easily earn.

@Linda_Owl The point is she would not pay a little more, she’d make a LOT more. See my response to @Jaxk below for why.

@jaytkay In point of fact, both you and Warren Buffett pay exactly the same tax rate of 10% on the first $8,700 of taxable income you earn. You both get to keep to keep exactly the same amount of it.

@bkcunningham No. When your income goes up, what you hang on to doesn’t go down. It’s insane to think otherwise. How would anyone ever become wealthy if earning more money meant you ended up with less?

@glacial See—you can only debate facts with those who live in the fact-based Universe.

@JLeslie I would not doubt it one bit.

@Jaxk Let’s do the math,assuming that her taxable earnings after deductions are $25,000 per month, or $250,000 in 10 months.
0 – $17,400 is taxed at 10%, so that’s $1,740 in taxes
$17,401 – $70,700 @ 15% = $7,995
$70,701 – $142,700 @ 25% = $18,000
$142,701 – $217,450 @ 28% = $20,930
$217,451 – $250,000 @ 33% = $10,741.50

So if she stops there 10 months into the year, she will have taxable earnings of $250,000, a tax liability of $59,406.50, so she would keep $190,593.50.

If she works the next two months, earning $50,000 in taxable income and it is taxed at the new proposed rate of 39.6%, the tax comes to $19,800. She keeps $30,200 of that two month earning. Would you rather close out the year with after-tax earnings of $190,593.50 or $220,793.50?

Me, I’d go for the higher sum. And El Rushbo makes $50,000,000 a year. Ever notice that he doesn’t stop working after the first 2 days to keep from going into a top bracket? His audience may be a bunch of dunderheads. He may be able to convince them they need to do that. But Limbaugh himself is not that stupid.

JLeslie's avatar

@Jaxk I thought that as a possibility too. A lot of married coupleswith children think that way, especially if one space is the main bread winner and the other makes much less. Why bother to work at all if the bread winner already put them in the highest tax bracket. But, most people who understand margnal tax rates don’t stop working or earning themselves because they are in a higher tax bracket. I’m not saying it is impossible or never happens, but it isn’t likely. At least not as likely as the idea that most people don’t understand how the brackets work. Would you agree most people don’t understand how the brackets work?

Jaxk's avatar

@JLeslie

Actually I think most people have a general grasp of how the brackets work. Maybe not a good understanding of the tax code but the brackets aren’t really all that difficult to grasp. Especially anyone running a small business. As for not working beyond $250 it is unlikely that a lot of people would take that option. But it isn’t unreasonable to assume that some might. If your receiving a paycheck you don’t really have that option since you would likely lose your job. If you have a business it is also difficult to shut down and still retain your customer base. But if you have the flexibility to shut down and not hurt the business that may be appealing rather than working for half pay. It is easy to see that if the tax bracket went to 100% people would choose time off rather than working for free. So the question is where is the line 50%, 75%, 90%. It kind of an individual decision. It seems a bit hypocritical to call someone stupid just because they don’t make the same decision that you would as @ETpro has done.

JLeslie's avatar

@Jaxk I agree it is an individual’s decision whether to bother to work when making a lower net amount, but I completely disagree most people understand marginal rates and how the brackets work. But we can agree to disagree there, I don’t have data to support my theory just as I said facebook and fluther and personal conversations I have had. Probablu business owners are more likely to understand, but I think a lot of self employed people, just to differentiate between those who work for themseves and those who employ others, are like most individuals who have no idea. Again, only my opinion.

bkcunningham's avatar

I think we are saying two different things, @ETpro. I’m saying that when you earn money and pay taxes you are not getting what you earned. You are getting less than you made. You are keeping less than you earned regardless of how you cut it when it comes to paying taxes. You might try to make people seem stupid and call them names for being upset with paying more taxes as they earn more and that is your right. Of course when you earn more you make more money. But when you earn more you pay more in taxes and keep less of what you earned.

JLeslie's avatar

@bkcunningham You were referring to @jaytkay, but just a year ago you also thought when someone goes to a higher tax bracket the whole of their salary was taxed at the higher rate. I remember going back and forth about it. I am not saying it to put you on the spot, goodness knows there are tons about the ins and outs of taxes I don’t understand, I have a call into my accountant now about a property tax write-off question. Not to mention again, I think most of American thinks the whole salary is taxed at the higher rate, so it is nothing tofeel badly about that’s for sure.

bkcunningham's avatar

Yes, @JLeslie. That is true. It was you and, if I’m not mistaken @augustlan who taught me that valuable lesson. I’m missing your point, but you are right about me learning the lesson about tax brackets.

JLeslie's avatar

@bkcunningham I just think more people say off the cuff, “it’s not worth earning more money” because of they don’t understand how the brackets work. @jaytkay was basically saying that.

In fact, not really directed at you @bkcunningham, but everyone, if they lower tax rates below $250k and raise rates over $250k then people somewhere up in around $300,000’s will still be at the same total taxes paid as before, because they pay less on their first $250k, so the increase really hits people in the 300’s not $250k and above. Unless the rates stay thesame for under $250k. Personally, I am not for lowering the rates though.

bkcunningham's avatar

When I’d complain about the amount of taxes being taken from what I’d earned, my grandfather would say, “I wish I had to pay $1 million in taxes.” I understood what he meant because that is the way I was raised. It doesn’t mean you can’t complain though. It is sad to me that now people are demonized for wanting to make more and demonized for wanting to keep more of what they earn.

It is frustrating and honestly, it is a little sad to me to see how divided we are becoming and the name calling and belittling.

I was reading my granddaughter The Little Red Hen just a little while ago before she went home. I want her to understand the moral of the story and I’d hate to think that she’d be shunned and called a whiner because she wants to keep what she’s worked to get.

JLeslie's avatar

@bkcunningham What I wonder is if Bush did not make the tax cuts if people would really be so freaked out about paying the old level of taxes? Sure people want to hold onto their money, even liberals, but somehow we were paying our taxes back then. Problem in America, and probaby everywhere, is it is really hard to go backwards because most of us spend almost all of what we earn, so a cut in pay, or more taxes out of our pay, we can’t afford our same lifestyle we have become accustomed to.

ETpro's avatar

@bkcunningham You would probably complain bitterly if the roads you need to get to work and to have food and fuel trucked to you fell into disrepair and were no longer usable. You might not like it if nearly all the employers in the nation had to close their doors and move offshore because the infrastructure to support their activity, and the educated workers to do their work were no longer here. Your taxes and mine pay to make sure thise things don’t come to pass.

We are currently taxed at the lowest rate we have been in 70 years, yet tax whiners now abound thanks to Republican party propaganda.

Funny thing though. Somalia already has the tax paradise these tax whiners say the crave. Have you noticed the long lines at the airports and harbors waiting for the next plane or ship to Somalia? Odd, neither have I.

bkcunningham's avatar

I’m not complaining, @ETpro. It is just frustrating that nearly every new thread you start is full of name calling and propaganda against anyone who doesn’t have your views.

If you would though, please help educate me. What portion of these federal tax dollars we are discussing goes toward highways? I’ve read thread after thread where you’ve complained about the despair of the bridges and roadways and how is is certain people are going to die because of this. So, I’m curious, how much of our current federal tax dollars is going toward this infrastructure repair and maintenance and why it isn’t being used properly?

If I’m not mistaken, @ETPro, your post is an example of a slippery slope.

Yes, @JLeslie, I think people who don’t want their taxes to go up are very afraid of what is going to happen in this economy and four more years of the same under Obama. The couple in the story that brought this discussion about are chiropractors. So what if they don’t want to be taxed higher in another bracket and take time off to vacation.

You know and I know how it works. Once taxes go up, it isn’t very likely they will go down again. I suppose when people got the little bit of a break they wanted to keep it and rightly so. It is their money. Watches your hard earned money go to crumpling infrastructure should be a wakeup call to every American that there needs to be a change in who is handing your money.

JLeslie's avatar

@bkcunningham From what I can tell it works both ways, once taxes go up it is hard to get them back down, and also once they go down it is hard to get them back up. I would be fime if they propose a tax hike for 5 years, and then it reverts back with the argument that it will help chip away at the debt.

In my example I was not talking about the economy fear, just the individuals own pocket, but I do understand some people are convinced the economy will struggle if taxes are raised. Personally I don’t think the economy will be affected on bit if you raise the top bracoet a few percentage points.

bkcunningham's avatar

I think people understand that the economy affects their own pocket, @JLeslie. Your pocket and the economy go hand-in-hand. If you want to take more money out of someone’s pocket during a bad economy, it is frightening to them because they don’t know if their business can afford the loss during a bad economy or if they aren’t a business owner, they are concerned whether their employer can substain the business and keeping them employed while the economy is bad and someone wants to take more money out of their pocket.

JLeslie's avatar

@bkcunningham Taking more money out of my pocket will not affect my buying or the economy, and I am not part of the over $250k group, but we make a good salary, and don’t spend all our earnings. My savings account will be a little affected though. If it doesn’t affect me it certainly won’t affect the guy making $10million a year trust me. So, that is an argument to keep money in the hands of the middle class person if the worry is the economy.

I’ll assume you don’t have a household income over $250k you can correct me if I am wrong. I say that only based on statistics that the majprity of people in the US earn less. If you did make $400k would you spend it all?

glacial's avatar

I am having a hard time imagining a person who makes over $250 000 per year finding their tax situation “frightening”. I don’t imagine they are frightened by much. Annoyed, perhaps. Inconvenienced, yes. But frightened? No.

bkcunningham's avatar

You are very unique, @JLeslie, if having less money doesn’t affect your buying. If I made $400,000 would I spend it all? If I made $400,000 annually would I spend it all each year? If that is what you are asking the answer from me is no. I was raised by older parents who were raised during the Great Depression and appreciate having a cushion and a savings account. That isn’t to say that everyone is like me though.

I’m missing your point with that question though. Would you mind clarifying why you asked?

gailcalled's avatar

If I earned $10 million and led a life where I did, indeed, spend it all yearly, I would certainly have less buying power if that dropped.

Granted, that is a ludicrous example, but the principal still stands and is not related to trust.

Bill and Melinda would have less money for their global programs.

”...We focus on the health problems that have a major impact in developing countries but get too little attention and funding. Where proven tools exist, we support sustainable ways to improve their delivery. Where they don’t, we invest in research and development of new interventions, such as vaccines, drugs, and diagnostics.” Source

ragingloli's avatar

If I were a millionaire, then I would not spend it all. What would be affected would be the rate my money accumulates in my account, not my spending.

In the same way, a company that is profitable does not reinvest all of it into the company. And what higher taxes certainly would not affect, provided the taxes do not completely eliminate profits, is lower the companies ability to employ workers, because salaries and wages are part of the costs before profits are even calculated. In fact, by definition, profits are what remains after all costs of the company are deducted from the revenues.
Fact is, as long as higher taxes do not completey eliminate profits altogether, the companies ability to operate is not compromised in any way. You may get pissy shareholders, sure, but fuck those greedy arses.

So when some pizza franchise cuts hours or fires workers because of the ACA and says it’s the only way, they are either
1. lying, and the move is purely political posturing.
or
2. They are managing their company so badly anyway, that they are barely profitable in the first place. (see the twinkie house)

bkcunningham's avatar

@ragingloli, what do you think the profit on one pizza is for a franchise like Papa John’s?

JLeslie's avatar

@bkcunningham My point is that people who have plenty of money they can save, like the guy who makes $400k, if you tax him a few percentage points more it does not affect his spending, so upping his taxes does not have a negative affect on the economy, it has an affect on his saving and maybe some of his investing, investing in stocks, bonds, mutual funds, maybe even real estate, but not much difference. Let’s say we tax him 5% more on the money over $250k, so 5% on $150k $7,500. So, he will invest or save $7,500 less that year, I don’t see how that amount affects the economy much if any. It’s not going to be the difference between buying a condo to rent out or not. But, the person making $100k, or $50k he might actually buy $5,000 less worth of goods. Do that to enough people and it can affect the economy.

gailcalled's avatar

The guy who is making 400k may not feel he has money enough to save either. HIs extra taxes can easily affect his spending. Every little bit adds up.

He may not be either investing or putting any money into a savings account before a tax increase. He may have a large family, aged parents, and other long-term commitments rather than a plan to buy a condo to rent or not.

“Plenty of money” is relative.

JLeslie's avatar

@gailcalled Absolutely “plenty of money” is relative. But, the average person in the average community $400k is plenty of money. Even someone with kids and later taking care of parents if they have been making $400k for many years have lots of money unless they spend all they have, which is stupid. I hate the word stupid, but people who spend spend spend when they make plenty to live well and save, do harm to themselves, their families, and society. It’s different when people earn modest incomes, or when God forbid a life event takes their savings. But, the average guy making $400K a year in an average city with 2.5 kids should be just fine and saving plenty. It is a very high income. It is not high enough to be up with the old wealth, but it is certainly enough to not have to worry much about food, shelter, some luxuries, and savings for the future. I am not talking about someone who has one awesome year. I am referring to people who are generally high income earners. Are you really going to say that the majority of people earning that much money uses up all that money on spending?

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ETpro's avatar

@bkcunningham I am interested in politics and religion. Discussing either on Fluther means you are going to have some who vehemently disagree with you. I reckon I give as good as I take in such debates. But I’m always fascinated by those who routinely chime in to tell me how wrong I am, then complain that I don’t just roll over and play dead for them—saying that therefore I am incredibly biased—unlike themselves.

Actually taxes are VERY hard to raise and VERY easy to cut. When is the last time a major tax cut was proposed and we had massive street demonstrations against the idea? It is only recently, due to the crumbling infrastructure and failing educational system that public sentiment has swayed to support for a tax increase on very high income earners.

To answer your questions, the Transportation Department gets 18.74% of the federal budget, just slightly less than the 19.63% we spend on Defense Department. Here are some links to say that’s not enough.
America’s Crumbling Infrastructure
Crumbling infrastructure hampers recovery
1 in 4 Bridges in the U.S. is Unstable: Our Infrastructure Needs Help
Minnesota I-35 Bridge Collapse

We did astoundingly well under the tax rates that were in effect during the Clinton Administration. We did horribly under the lower rates pushed through by George W. Bush. We can certainly debate what we should and should not spend on. I am sure there are places where we can cut spending with no real harm to the economy or anything that matters. I am open to debating where we can save. But I am equally certain there are things that are vital to our future as a great power, and that some of them are currently starved for funding.

Republicans are always claiming Democrats love taxes, and that’s patent nonsense. All of us want to keep every dollar we reasonably can. Democrats just realize that you get what you pay for. Republicans live in a topsy-turvy universe where less investment magically generates more return. Sadly, that universe doesn’t actually exist.

bkcunningham's avatar

@ETpro, you say the US Department of Transportation receives just slightly less in taxpayers’ monies than the US Dept. of Defense. Yet, the country’s infrastructure is crumbling. Why would I want to invest more in this type of mismanagement of my funds? I’m sure your response will be the same it is for education; just throw more money at the problem and it will magically improve. Yet that isn’t true and you and others like you don’t want to get your hands dirty and fix the problems. You just want to sit on your high horses and direct that more money be taken from people you judge to be affluent enough to not miss the money and you insist they are whiners if they don’t want to work the extra hours to keep the money coming into to support your demands. While these astronomical amounts of money are taken from people in an elaborate manner of taxing scenarios, you say the system you support and love is creating subpar infrastructure and subpar education and you want to feed it and fuel the disaster with more of someone else’s money. It doesn’t make sense to me. If that is the reality in your world, you are right. I live in another universe.

ETpro's avatar

@bkcunningham The fact you are spending a large amount on something and not getting the results you want is definitely not proof positive that you are overpaying, and that cutting your investment in that area will improve results. If the world just automagically worked that way, why not immediately cut defense spending in half, and thereby vastly increase the size of our military?

I’ll be the first to agree that we should look carefully at every line item in the current Transportation Department budget. If we’re funding things that aren’t necessary or aren’t delivering the desired result, changes to those line items could give us more infrastructure improvement without costing us another cent.

But the problem we face today is huge. We need a smart electrical grid for the 21st century. It needs to be hardened to protect it from either a nuclear EMP or a massive solar eruption. With global warming, it needs to be storm hardened. This is a “Pay me now or pay me later.” requirement. It simply isn’t something we can avoid by keeping our heads firmly embedded in the sand. We will either pay for it once and for all, let things ride and pay for it over and over ad nauseum, or let the grid fall into disrepair and become a third-world nation.

The scope of decay in our roads and bridges is daunting. I walk a great deal. Perhaps people speeding along in their cars aren’t aware of the crumbling concrete; exposed, rusting re-bars; patchwork road and sidewalk surfaces full of temporary fixes that become potholes again every winter. There’s a bridge just a short distance from my home. It’s concrete foundation is falling apart. It’s a drawbridge, and the two metal-mesh gates that open are pocked with welded on steel plates that are temporary fixes to portions where the metal mesh gave way. Trucks over ten tons can no longer use any of the inner lanes. The sidewalks are so full of potholes and decayed concrete that caution is required walking on them. The pier extending to the upper right in the linked Google Maps satellite view cannot support a human’s weight. Large sections of its surface have rotted till the decking fell into the river. And this isn’t one selected instance. It’s just the bridge closest to where I live. We are not going to fix all this by constantly reducing what we invest in doing so.

Jaxk's avatar

@bkcunningham

You need to understand that liberals have no sense of scope, size, or proportion. If a little spending is good, a lot must be great. If you think taxes are too high, that means you want no tax what-so-ever. If you think regulation is out of control, you want no regulation. And if you think government has grown too big, you want no government at all. That is why we get the comments about going to Somalia. Trying to argue about size and scope is an exercise in futility.

jaytkay's avatar

Ummm, people, the Dept of Defense spending is EIGHT TIMES the Dept of Transportation spending

The Dept of Transportation 2012 budget is $84,135,000,000 ($84 billion)

The Dept of Defense budget 2012 budget is $688,255,000,000 ($688 billion)

http://www.whitehouse.gov/omb/budget/Overview

bkcunningham's avatar

@ETpro, I noticed the Textron research and development center in the photo right beside the bridge you posted. That is a 300,000 sq. ft. facility. I’m sure they employ many people. How much does that company contribute to your community in tax dollars?

JLeslie's avatar

My parents and I were just wondering if Deptartment of Defense maybe repaved the highway we take to a Navy base near me. The road was already in decent condition. We already had figured they completed the upper loop of the highway (basically a beltway around Memphis suburbs) and not the lower part because of the base. The lower part is actually where the businesses and residentential is and where it would make more sense to have highway traffic. The only thing on the upper end is the military base and houses kind of out in the country.

glacial's avatar

Interesting tactic… hiding infrastructure improvements in the defence budget because defence spending will get more political support than Department of Transportation spending… this has possibilities. ;)

ragingloli's avatar

@glacial
That’s why they put the indefinite detention thing in the NDAA.

ETpro's avatar

@bkcunningham Textron has several facilities in neighboring communities, but I believe all they house in that location is a heliport. The bulk of that building houses BNY Mellon New England, and investment banking operation. I don’t know what they contribute to Everett, but I did find this.

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