Fwd: Re: How Tax Brackets Work ANS

Hi everyone:   Here is an article one of our readers wrote in response to the article I sent to you titled: How Tax Brackets Work.  It's short. 
It is first published here, so no URL to refer you to.....
--Kim

 
======================================
 
How Do Tax Brackets Really Work?
 
        by Bob Steiner
 
 
Let us look at the confusion about How Tax Brackets Work.  
When you learn the truth about the different interpretations, you will
understand that the analysis goes beyond mathematics and gets into politics.
 
In the article by Dave Johnson in the recent issue of this newsletter, we read:
       
        Suppose they say they are going to raise taxes on income above $250K.
        People seem to think that this means if you earn $250K plus a dollar,
        that you owe an additional tax on the entire $250K.  [I never met anybody
        who thought that.]
 
Back to Dave Johnson:
              
        Here is how it really works.   
        What happens is that the first $250K is taxed just like it has been,
        but that anything that is made over 250K -- and only the amount over 250K --
        is then taxed at the higher rate.  The tax on the amount below $250K is not
        changed.
 
        Example: Suppose the tax increase is 5% on income over $250K.  That means
        that a person who reports income of $250K plus one dollar will be taxed an
        additional 5 cents.  FIVE CENTS! 
 
        Yes, that's right, if it is 5% they are talking about, it means a 5 cent
        increase on people who make $250,001.
 
        Let me repeat that.  If you make $250,001, and they raise taxes 5% on people
        who make over $250K, then you will have to pay 5 cents more.  Five.
        F.I.V.E. C.E.N.T.S.  That is what people are so upset about.  5 cents.
 
Now, if you will pardon me, I shall leave politics and get back to arithmetic.
 
If you are Married Filing Jointly OR if you are Single (using tax rates for 2009),
if you have Taxable Income in the area above $250K, you are in the 33% bracket. 
If, starting at $250K they raise the tax bracket by 5% (per Dave Johnson's example),
your tax bracket will be 38%.  That is the present 33% plus the 5% as the raise
being discussed.  If your Taxable Income goes up just one dollar, that one
dollar is taxed at 38%.  Thus, if your taxable income goes up just one dollar, that
One Dollar will be taxed at 38%.  Your Income Tax Bracket has increased 5%,
but that additional taxable income will be increased to 38%.  And so, that extra
dollar will be taxed at 38% -- that's $.38 income tax on that one dollar additional
taxable income.
 
Now, if you want to take a survey of whether people believe that your
income tax went up just 5%, or 5 cents on each dollar,  or 38%, since
your tax bracket is 38%, which 38% is applied in full on your tax bracket
of more than $250K, it appears to matter little whether your survey subject
took higher mathematics.  The knowledge you need to guess at this
person's reply depends more on whether the person considers himself
or herself to be a Conservative or a Liberal.
 
I wish you all a happy, productive discussion with your friends.  And if you
truly want to cut down the tax rate, figure out how to stop having wars in
the world.
 
Happy, peaceful days and nights to all.
 
Sincerely,
 
 
Bob Steiner