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September 8, 2011
Tax For Grownups
Laura Laing is the author of a book called Math For Grownups. Gregory Connolly is an ostensibly grown-up journalist, tasked by USA Today to summarize some "tips" from Laing's book. In his summary, Connolly gets one thing very wrong:
That raise actually might not be as good as it looks. The extra money 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. Better benefits, such as medical, can save you money while keeping you in the same tax bracket.Gads. We need a remedial lesson in what "marginal tax rates" are. ... [T]he failure to understand the nature of marginal tax rates is something that occurs far too often in lay journalism, to the extent that you do, from time to time, encounter stories about people artificially restraining their own income out of terror that they'll end up on the losing end of a tax rate deal.
(Hat Tip: Josh Blank, Francine Lipman.)
September 8, 2011 in Book Club, Tax | Permalink
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Comments
This is a common misperception. For example, http://krugman.blogs.nytimes.com/2009/03/03/imaginary-notches/ .
Posted by: Jeremy Stocks | Sep 8, 2011 10:49:28 AM
We've all heard apocryphal "stories about people artificially restraining their own income out of terror that they'll end up on the losing end of a tax rate deal." I generally file them with the stories of family farms in Iowa that had to be sold to pay federal "death" taxes.
Posted by: Publius Novus | Sep 8, 2011 11:19:50 AM
Why are smart people so dumb????? Or is it they are really lazy and not smart because they can't take the time to learn about marginal rates and income taxes.....and of course never ask a tax attorney about something you are going to publish....why ask an expert when I am writing about something I know very little about???
Posted by: Sid | Sep 8, 2011 12:01:35 PM
This surely isn't what that author intended, but weren't some phaseouts in the Code (at least at one time) based on "notches" that could result in a greater than 100% marginal rate? I seem to recall that there were some situations in which the amount of tax benefit that an upper-income taxpayer lost was expressed as x% for every $x,0000 *(or part thereof)* by which AGI (or some similar measure) exceeded a threshold. If the taxpayer's AGI was right on the cusp on the next higher phaseout notch, the next dollar of income could trigger more than a dollar of tax. I believe the provisions I have in mind were either repealed permanently, or shelved until the Bush-Obama tax cuts expire.
Posted by: Jack Bogdanski | Sep 9, 2011 2:26:36 AM
How about the "tax increase" signed by President Clinton, whose wife later stated that he never increased taxes. That law raised taxation on Social Security from a 50% bracket to an 85% bracket for certain recipients. There are cases where an income increase can significantly raise the tax bill. (As happened after President Reagan signed the law that raised taxes on Social Security from zero % to 50%.)
Posted by: John Tuck | Sep 9, 2011 11:21:04 AM
Its all George Bush's fault.
Posted by: DeductionSeeker | Sep 9, 2011 12:22:00 PM
I generally file them with the stories of family farms in Iowa that had to be sold to pay federal "death" taxes.. I believe the provisions I have in mind were either repealed permanently, or shelved until the Bush-Obama tax cuts expire.
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