Omifuckingod… how stupid do you have to be to write for USA Today? Worse yet, this appears in an article titled “Math tips for the rest of us.” Yeah… if the rest of us are fucking morons:
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.
Ah yes… the classic marginal vs. effective tax rate fallacy. I ran into that plenty of times, arguing with assholes over 2010’s high-earners income tax initiative. As the folks at the Center for Economic and Policy Research calmly explain:
No, no and 286,000 times no! The tax system brackets give marginal rates. This means that if the raise bumps you into a higher bracket then you pay more taxes only on the income in the higher bracket. Suppose that the tax bracket for income under $200k is 25 percent, and for income over $200k is 33 percent. If you get a raise that pushes your income from $195,000 to $205,000 then you only pay the higher 33 percent tax rate on the $5,000 that is above the $200k threshold not your whole income. Therefore, there is no (as in none, nada, not any) way that getting more money, and being pushed into a higher tax bracket will leave you with less money after taxes.
Can the editors at USA Today really be such stupid fucking morons (they still haven’t posted a correction), or is that just their core demographic?
Ahem. Why would they run a correction when the mistake was deliberate?
They WANT people to misunderstand how tax brackets work.
Remember all those twats who were talking about cutting their income under the $200,000 limit to avoid more tax? That made no sense either, but that didn’t stop them then either. The only way you can lose money by making money is if there is a high bracket with over a 100% tax rate.
The maddening thing about Americans and taxes is how ignorant they are about how they work. Especially considering that in theory at least high earners should be more savvy about money at least, but the opposite is true. The only thing we know about taxes is that we’re agin ’em. Idiocracy is here.
Didn’t your momma tell it’s not nice to pick on retards? It’s USA Today. USA Today is the literally equivalent of the kid in 1st grade who has his mittens pinned to his jacket.
“arguing with assholes over 2010’s high-earners income tax initiative.”
The one that would slowly be lowered after 2 years and eventually cover upper middle earners? Then middle income earners?
Yeah, the ‘assholes’, aka voters, slapped that camel bitch pretty hard. But thanks for calling 2/3 of WA state, 55% of King Countty ‘assholes’. I prefer ‘moron’s, ‘idiots’ and ‘buffoons’, but calling 2/3 of the state ‘assholes’ certainly helps when we need the votes of ‘average Joes’.
literary. Dammit.
“the kid in 1st grade who has his mittens pinned to his jacket.”
The one who’ll get a lifetime of handouts?
@3, Yes, assholes. You know, assholes like those who make the argument you make, when in fact the only way the threshold could get lowered is by voter approval, because all significant tax increases end up coming before voters either by initiative or referendum.
Hey! Quit picking on Will in Seattle’s favorite paper.
Thanks Goldy! Good luck with your next tax initiative. Seriously, good luck.
USA Today: the newspaper for people who would rather be watching TV.
“when in fact the only way the threshold could get lowered is by voter approval,”
Yes, the way the legislature overrode I1053’s predecessor.
Just admit it, you’ll never win the income tax game in WA State.
@6 Thank you Goldy.
Goldie’s theory of tax brackets is just that: a theory. I think it’s important that USA Today presents all viewpoints on tax brackets.
Is there any way one can make more pre-tax income and wind up with less post-tax income? I know how marginal tax brackets work and I also know that most exemptions/deductions/credits/etc (eg Earned Income Credit) are phased out and don’t have hard income limits but soft ones. Still, it would seem like there might be some corner cases where that happens. Certainly it happens in terms of effective purchasing power in that there are hard limits on some social programs eg CHIP and the child care subsidy my grad school provided such that earning an extra $3000 would have cost my wife and I about $10,000 per year extra to maintain the same level of services.
I realize these are corner cases and not explicitly what the USA Today article is talking about, but there are some perverse incentives out there.
Actually, I have seen this in action, not effecting me directly but an ex-friend of mine got a raise, entered a new tax bracket, and wound up making only a couple dollars more per paycheck …. yet she still supports progressive taxes, insanity runs rampant.
Bullshit goldy “argument” assholex, fucking morons, i never have anything substantive to contribute so i will just resort to ad hominem. Stick to waiting tables.
Are we supposed to be impressed that you talk dirty?
@15: I don’t think you really understand anything.
What they should be saying, however, is that if you nose into the next higher marginal rate, you might want to think about reducing your taxable income below that threshold using a 401k contribution since that money would have more value as savings for use in the future, rather that as realized income.
Ah, I found a link demonstrating what I said @14: http://mises.org/daily/3822. Note that I disagree with the politics of the guy or gal who wrote that, but the charts/data themselves look approximately accurate to what I know.
@14,
People who qualify for SCHIP wouldn’t be subject to a high-earners tax hike.
I do agree that there are fucked up incentives out there, but the majority affects people at the very bottom. Take Medicaid as an example. If you make even a tiny amount above the maximum qualifying income for just one month, you get kicked out of the program, even if the very next month your income gets lowered to normal, at which point you have to reapply. Medicaid ultimately prevents poor people from accepting overtime or raises; the very things that might actually help them escape poverty.
Although it’s possible that this is a big conspiracy, never forget that journalists in general are incompetent at math. And so they assume that math is scary and difficult for everyone–kind of like science. So even if USA Today issued a correction, it would never be on the order of “we were wrong”–it would be on the order of “well, he says this, and she says that, so we’ll report both sides of the story.”
I agree that this kind of reporting IS being deliberately encouraged by Fox News et al. (climate change and evolution are “theories with gaps,” etc.).
I’ll also add to my post @20 that the graphs there (which show a marginal effective tax rate > 100% below about $40,000 for a family of 3 when including social welfare programs) only refer to the big government social welfare programs. County or state subsidized child care and many other programs would increase the marginal effective tax rate even higher at low-ish incomes. Of course availability of employer-sponsored health care would lower them, but I can only imagine a very small percentage of people making < $40k/year have that option (grad students usually do, but not many others).
And as we speak of perverse incentives, the grad school I’m about to start (after leaving U California due to budget problems) gives free health insurance to students, partners of students and children of students, but only if you have a child or children. If you’re childless, it gives free insurance for the student and 1/2 off insurance for their partner. Heh.
@21, see my link @20. I think we’re on the same page.
If you want a real horror story, I could write pages about my experience in a UC grad school (my wife also a grad student in the same program) when my wife unexpectedly became pregnant and we chose to have the kid. UC didn’t offer dependent insurance. They paid us a pittance on a 9-month a year schedule. The free health insurance program (SCHIP) calculated using a monthly income and said we made too much to qualify. The reduced cost insurance program (Healthy Families) calculated using a yearly income and said we made too little to qualify and we should be in SCHIP instead. They kept forwarding the application back and forth, each time advising us why they didn’t accept us and assuring us the other would. Meanwhile the due date got closer and closer and we needed to pay all the medical bills ourselves and buy insurance in case they never figured it out. After many, many, many hours on the phone with various people/agencies, in-person visits and emails and letters we got a hearing with an administrative judge that forced the state to enroll us in SCHIP and ordered them to pay all our back medical bills and the insurance premiums we had to pay. Turned out the hearing was 2 days before our son was born. In any case, despite letters to our state congresspeople and whatnot, the State of CA has never paid us back and I’m sure they never will. But it’s nice to know they have been ordered to, I guess. And it was nice that our son did eventually get health insurance.
@27 – you took a link from newsmax? Really?
Something that probably ads to this common misconception is how people tend to misread withholdings on their pay stub, especially when it comes to bonuses and retroactively paid raises.
They’ve updated the article with a long excerpt from the book, but it still doesn’t make sense. The book details a hypothetical situation where a person gets a raise and then has to pay more taxes, and then suggests he asks for an office cappuccino machine in lieu of the raise. But.. even after taxes he was still up $4,500.
The conclusion in the book is bizarre. The conclusion of the McPaper is par for the course.
@20, there are *A LOT* of nuances to doing a theoretical analysis like was done in that article, so I’m not going to endorse the numbers with any level of enthusiasm since the authors do not reveal some important tidbits of the analysis they did (are we talking only about losing the benefit, or the costs to replace it; are we considering lower-cost substitutions for government benefits; are we considering other widely-available though not mandatory benefits?). However, I will enthusiastically endorse one of their points, coupling means-tested government benefits with tax rates that are highly progressive at the low end is detrimental to the working poor, and as it currently stands, even the working lower-middle-class. I related a while ago how I have a friend who is specifically not working until her son enters school because they will actually have less money if she goes back to work (after paying for day care) and get health coverage that would be very expensive through an employer from the state for their son (and only their son) at their current income level. The hypothetical there is not the pink unicorn that you are making it out to be…it’s actually fairly common among the lower classes.
However, what USA Today did was totally disingenuous. They were not speaking to people who were on the cusp of losing food stamps or SCHIP benefits, they were talking to the people at 80-150% of the median income, for whom bumping into a higher tax bracket amounts to only a few extra dollars in taxes and much extra real income. @19 is really on to what should be the brunt of the conversation with people who are at risk of bumping from the 15-25% bracket or the 25-28% bracket…consider whether you can put some of that income to good, tax-free use (increased 401K contributions, an FSA if you have access to that, etc.). Also, while @31 doesn’t understand it, the idea that an increase in tax-free benefits might be better than a raise is a valid point, although I wouldn’t go the route of a cappuccino machine (quityerbitchin of you can afford a daily cappuccino), better to ask for a greater employer contribution to your 401K or healthcare benefits, or even investigate the possibility of switching to an HDHP with a generous employer contribution to your HSA. But I’ll almost always take a straight-up raise. My only concern is about the BIG PROMOTION I’m up for at year end that, if I get it, will disallow me from contributing to a Roth IRA. But I won’t complain because I’ll still be making more money and, because I was smart and invested young, will do justfinethankyouverymuch with more money to put away towards retirement, regardless of its taxable status.
FWIW, to back up my point about tax-free benes, I have negotiated these into my last 2 promotions. My coworkers at the same level have a higher salary than me, but I pay less for my health insurance and get a larger employer match on my 401K than they do. For me, those benes were worth it, though I do understand that they have more expensive homes than I do and have kids that they want to spend money on, so the extra income is probably worth it for them. Shame we don’t have HR professionals that can give this kind of good advice based on individual circumstances. I will, and have, done this analysis for friends and coworkers for the low, low cost of a nice bottle of wine…line starts here. 🙂