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Marginal income tax rates for a single California resident (2007) (dbaron.org)
56 points by tomsaffell on May 12, 2010 | hide | past | favorite | 80 comments



Here's a similar graph for the UK (but by total tax paid rather than marginal):

http://upload.wikimedia.org/wikipedia/commons/2/23/UK_tax_NI... (or if your browser won't do SVG, this is almost the same: http://www.reviewmylife.co.uk/data/2008/0901/percentage-of-i...)

It's funny that the UK - being European - has a reputation for high taxes and "socialism." There's a lot I don't like about the UK but the taxes are mostly fair (it's the rules for ancillary tax issues that are messed up). The taxes there even include emergency medical expenses.

Mr. Californian earning $50k would be at ~42% on the main post's graph. Mr. Brit earning £34k (roughly equivalent) would be ~26% on the UK graph (or even less if he were self employed!). Hmm.. perhaps sky high gas taxes and 17.5% VAT are a little more bearable for me now.. :-)

[Note: I ballsed up in that last paragraph. The CA chart was marginal, not total like the UK graph. The UK marginal rate at £34k would be 20% for income tax (http://www.hmrc.gov.uk/rates/it.htm), 11% for NICs. So 31% vs 42%. However, at £35k the marginal rate would be 40% + 11% NIC == 51%. At £40k, however, the marginal rate would be 40% + 1% NIC == 41%. Who said this was easy??]


This comparrison is a little misleading, even now updated for marginal/average rate issue. There are several issues:

1. The 'example' earning of GBP 34k is just below the threshold at which the margin rate switches to 40% (double!)

2. The UK number exlcudes National Insurance payments, whereas the Cali one includes Social Security (the US Equivalent)

3. The UK one does not have Council Tax, but the US one does have State income tax. Whilst council tax is not income based, it does correlate with income, so this the two are more comparable than not.

[UPDATE - looks like my reply crossed in the ether with your update :) when will HN get etherpad commenting ? ;]


Council tax definitely does not correlate with income in the UK.

I lived in Westminster, which covers most of the west of inner london. These are wealthy areas covering a lot of expensive real estate, including Buckingham Palace, for one.

My council tax was much lower than friends of mine who lived in commuter suburbs of London. The main reason is that wealthy areas like Westminster contain a lot of businesses, who get slugged with council taxes. They also make a lot of income from parking and things like that.

When you fold in lower transport costs for living in 'Zone 1' it actually makes more sense to live close the centre of London than further out. This is even more so when you start to factor in the value of your time lost sitting on the Tube for hours on end.

Not sure how these factors work out for Council regions in richer non-urban areas, but there's enough evidence to disprove correlation between council tax and income.


Cross-boroughs I suspect there is little correlation - you are right - but I was referring to cross-band. The context is a comparison of marginal tax rates, so the issue is: in this particular place, how much does earning an extra pound(gross) put in my pocket?' (if the comparison isnt between particular places, then I could just as well compare compare the UK to Nevada income tax - none). I would be very surprised if there isn't a strong correlation within a borough between income and band (i.e. people with higher incomes live in more valuable houses). Of course, any individual can choose to be an exception to that, but on average within a borough, those earning more pay more council tax.

So pick any particular borough in the UK that you want for the comparison, but then ask 'in this borough, do those on high incomes pay more council tax, on average?' If the answer is 'yes', then that is effectively part of your marginal tax rate, albeit indirect.


You're right, I fixed many of the issues seemingly at the same time you were writing, sorry! :-) However:

Whilst council tax is not income based, it does correlate with income

I don't think that's true. I'm a higher rate taxpayer and I'm in band A, the lowest band, whereas most of the people I know with high council tax bills are retired or otherwise coming to the ends of their career (on not much pay).

That said, council tax isn't relevant here since American homeowners typically pay property taxes as an equivalent (and property taxes tend to be higher than council tax).


You're right - property taxes (which I forgot about) probably outweigh council taxes.

But regarding the correlation, I find it very hard to believe that within a borough, those with higher income dont on average pay more council tax, no matter your two exceptions ;) (see my other comment)


In the South East and London, you're probably right. It's difficult to define, though, with the ways council tax can be divided up on a per-person basis.

In my county, I think my argument stands. Only 6% of the population is 25-35 and 40% is 60+. As a rather work poor area, nearly all of the expensive houses are owned by people who no longer work :-) This is life oop North!


Yeah, that's probably fair - when you have an unusual mix of ages the correlation probably isnt there. Whereabouts Oop Nerth are you?


Rural Lincolnshire. I believe there's one other frequent HN user around these parts :-) (I'm from London but my wife is from here, and I kinda like it now!)


The Californian would be taxed 42% of his 50,000th dollar. Overall I believe he's paying less than 26% of his entire income.


Doh, good call. I fell into the marginal vs total trap I tried to cover in my first paragraph, lol. I'll add a note.


Wouldn't fair taxes, strictly speaking, be a horizontal line?


You've just described a flat tax rate.

http://en.wikipedia.org/wiki/Flat_tax

You can count me into the people who support flat tax rates, if for no other reason to stop the pointless millions of hours of productive time wasted trying to rort the system. While people will always cheat, if all income is taxed at a flat rate, at the source, then the incentive to spend money on tax accountants falls.


The Negative Income Tax seems like an interesting flat-tax proposal that could even satisfy those in favor of progressive taxation for political reasons: http://en.wikipedia.org/wiki/Negative_income_tax


See also the Bradley X Tax, which is a value-added tax melded with an income tax. The income tax can be as progressive as you like, and the VAT is equivalent to a flat sales tax.

http://en.wikipedia.org/wiki/X_tax http://www.princeton.edu/~ceps/workingpapers/93bradford.pdf


Fair taxes is an oxymoron.

A flat tax is more fair than a progressive one. But it would be more fair with a head-tax aka. poll-tax. Everyone pays the same amount.


And what will you do with the half of the population whose total annual earnings don't meet their tax obligation? That's a lot of soylent green for the rest of us to eat.


A free trip to Canada.


In the marginal or total revenue? Ie tax = C, or tax = c * income?

How would we define fair here? Both of the above options seem somewhat fair: everyone contributes the same amount, or everyone contributes the same percentage of income. Or a third standard for fairness could be that the benefit you get from government programs is equal to what you pay in taxes.

I don't even know which of these I think is best (let alone a hope of ever changing anything). Perhaps the best way to cash out "fair" in this case would be to start with some assumptions about what taxes are supposed to do; eg solve coordination problems, support disadvantaged people, etc; and see what can be derived.


That's an interesting comparison, thanks for posting it. I'd love to see something similar for some other countries famous for high taxes and high social services, e.g., Sweden.


Interesting to see this on HN a little over 2 years after I wrote it.

My main point wasn't so much about the magnitude of the taxes, but about the shape of the graph. Most of what gives this graph its bizarre shape is a result of the federal laws, not state ones; I just happened to be computing for a California resident because that's where I live, so I had the tax forms in front of me. (And it's also the largest state by population.)

(I'd also note that state-to-state comparisons of taxes aren't really fair without adding local taxes too, since different states have different relationships between the amount of money spent by the state government and local governments. In California, specifically, it's very hard to raise local (property) taxes, so much of education funding comes from the state government. In many states, education would be funded much more by local taxes.)


Policy is getting more and more irrational over time. It's hard to discern any rational or ideological motivation behind much of it nowadays. It'll probably get worse before it gets better.


It's even worse than this if you're self employed, because you have to pay an additional 6.2% for the employer's portion of social security. Ouch.

Edit: I just moved to CA in 2009, and am now working full time for my own bootstrapped startup. I also happened to get married in 2009, which is an additional tax burden. The taxes are painful. All in all, I feel like there is certainly a negative incentive to work for oneself, especially while bootstrapping and struggling to pull in enough money to pay the bills. We're motivated and are really enjoying it, but I would much rather see tax incentives for founding startups.


Hmm, in a relative sense, you're doing it wrong. You should be comparing yourself to the compensation of an employee after adding the employer's portion of the social security and medicare taxes back in. This calculation represents the true cost of the employee's labor to the employer, who is indifferent between whether the money is paid to the employee or to the government. This is why it makes no sense to me to say "the employer's portion" because the employee really bears the burden.


On the last point: does that actually happen, though? That's what idealized economic theory would predict, but large corporations' internal structure is quite far from idealized economic theory. My guess would be that if you were able to set up some experiment where one employee cost $100k while somehow having $0 payroll taxes, while another employee cost $90k plus $10k in payroll taxes, the employer would, more often than not, hire the $90k employee.

This happens already, I believe, as regards families. Employees with families cost more in health-insurance benefits than single employees, if the employer offers to subsidize a percentage of health insurance (as most do). But employers don't pay single employees of equal qualifications commensurately more, despite what economics would predict.


I don't believe companies can legally discriminate based on family status, either in hiring or pay. However, they can, and do, make people with families pay substantially higher premiums for health care. At my company, a employee w/ family pays 7 times as much out of their paycheck for health insurance than a single employee does.


It's not clear what would happen in aggregate, but if social security and medicare taxes were abolished tomorrow, I would certainly demand that the equivalent amount be added to my gross compensation, and I would certainly agree to this demand if I were an employer.


Or instead of an incentive they should just drop taxes across the board for everyone.


Don't forget the 10% sales tax.


This is the thing that galls me the most, believe it or not. My employer typically makes less than 10% margin on the products it sells. That means that for all the work that we do, the state government is taking more money from the transaction than we ourselves make -- and what have they done to earn it? Now add on top of that the corporate income tax and other ways they're bled.

With all this in perspective, it's really hard to see why anyone would want to start a business.


>and what have they done to earn it?

Mostly they have made expensive labor contracts with public sector unions who in turn control the elections.

And by the way, despite the high tax burden California is still close to bankruptcy. They need more. Costs a lot to keep those unions fed.

The politically correct thing to believe is that California's budget woes are caused by those evil right-wingers who have prevented the state from collecting even more taxes. Heh.


> he state government is taking more money from the transaction than we ourselves make -- and what have they done to earn it?

Seriously? Without a stable government enforcing property rights and the rule of law you wouldn't be able to conduct business reliably. Government provides the field business is played on, they have every right to a cut to pay for providing that field. Peace isn't free.


Does peace and a fair playing field require 30-40% of every productive person's income, or is that the result of special interests crowding out the core functions of government?


A little of both I'd say, but what you consider special interests other people consider interests. In a democracy there's always going to be disagreement about what's necessary and all good compromises leave everyone feeling a little unhappy.


Well, I will agree with you there--government generally leaves people feeling unhappy, which I why I prefer decentralizing it, letting people move out of the jurisdiction of a government that makes them miserable. That's the beauty of federalism and our Constitution. :)


I'd say it takes a good part of that. Some is direct: military, police, court, and prison spending accounts for a huge proportion of total government budgets, more than half. And some is indirect: there is only some level of inequality people will tolerate before there's rioting and seizure of property, so things like social safety nets indirectly serve to guarantee property rights by mollifying discontent.


That's a point a lot of people miss; redistribution of wealth to maintain acceptable levels of inequality are what maintain the peace. It doesn't matter if redistribution of wealth is right or wrong, only that it's a practical necessity to maintain a stable society.


I think the Federal government does most of those things. He's talking about state tax, I believe.

It's fair that everyone should pay taxes. It's ridiculous when the productive sectors of the economy get taxed heavily to subsidise non-productive sectors. Too many governments are approaching 50% of GDP - meaning half the country is working just to support the other half. This is madness anyway you cut it.


> meaning half the country is working just to support the other half.

What? That's not at all what it means.


Nearly all of government services are paid for by tax receipts of all kinds.

If half the country is getting paid from the tax receipts of the other half, what other definition can you use?


Half isn't getting paid from tax receipts for the other half. Everyone paying taxes is also getting benefits for what they put in. It's not as simple as just rich people paying for poor people. It's more that people kick in different amounts into the pool and then it's redistributed back out based on need. Wealth redistribution is necessary for a stable society.


I didn't say anything about benefits. I was talking about money.

All government services are paid by taxes of one kind or another, yes? If 50% of the GDP is government spending, therefore, the other 50% is by definition non-government activity.

Half of the population is paying for the other half to live. It matters not that a public servant pays taxes - that money goes straight back into the government, and pays him back.

I disagree with you strongly that wealth distribution is <em>required</em> for a stable society. I would say that forced wealth redistribution leads to unstable societies, as it all degenerates into what is fair and unfair, of which everyones idea is different. As soon as the route to wealth becomes one of obtaining power and influence rather than hard work, you're on the road to Greece and riots in the streets. Or total collapse of government/society such as former communist countries, which were based by definition on wealth redistribution. The concept of fairness should apply only to being able to keep the bulk of the wealth created by onesself.

Government services are necessary for a stable society, no doubt. Government services in a lot of cases increase the wealth of society by providing natural monopolies such as roads, ports, police and defense. We all benefit from government services.

I'll put it into an analogy. 10 people are on a deserted island, and there are tasks to be done to survive, which is fish, collect coconuts and fresh water. If 5 people are collecting coconuts, fish and fresh water, and sharing it to the other 5, then it doesn't matter what the other 5 are doing, whether painting pictures, snoozing in the sun, formulating foreign policy or building rafts to invade the neighbouring island, you can't escape the fact that one half of the island is working to provide for the other half. When they invade the other island and find a fridge full of beer, the total wealth and benefits for the island go up, but 50% of the people are still living off the work of the other 50%.

Anyway you slice it, if you're working for the government in any way, you're getting paid by tax receipts. And when 50% of the economy is government services, one half of the economy is paying for the other half. It's not a perfect analogy but is intended to get people thinking about the size of government. The only exceptions are where governments own money-creating investments like net positive sovereign wealth funds, and they are few and far between, and usually identified by having low or no taxes.


You know the problem with simple analogies, they're simple, the world isn't.

> I didn't say anything about benefits. I was talking about money.

Of course you didn't because you think it's about money, but it isn't. So lets complicate your analogy a bit.

> 10 people are on a deserted island, and there are tasks to be done to survive, which is fish, collect coconuts and fresh water. If 5 people are collecting coconuts, fish and fresh water, and sharing it to the other 5, then it doesn't matter what the other 5 are doing.

It most certainly does matter because reality isn't that simple. If the other 5 people, in exchange for those fish, coconuts, and fresh water, also provide in exchange other necessary services to those workers such as medical care, law enforcement, and education then they most certainly are not parasites living off the backs of the productive as you wrongly imply.

It matters not whether you pay a private company via income or government via taxes if they are providing the same useful services to you; those services don't come free. The difference is a philosophical one of whether you have a choice in the matter. One half is not supporting the other, both halves are mutually supporting each other, the flow of money is irrelevant.

Your mistake is in wrongly saying the government workers are not doing anything productive or contributing in any way and that's simply not the case.

Collectivism tends to benefit the weak the most and the whole group overall while disadvantaging the strong. Individualism benefits the strong the most, benefits the collective some, and disadvantages the weak massively. As the strong are always going to be outnumbered by the average and the weak, it's only natural that any democracy tends to eventually slightly favor the collective rather than let the few dominate. But swing to far to either extreme and everything falls apart. You can't let the strong take too much or the collective rebels and you can't let the collective take too much or the strong rebel.

Redistribution of wealth through social policy maintains this balance and prevents the fall back to serfdom which is what happens when the strong get too much power/money and pass it down one generation to the next. Not taking too much and letting the individuals still accumulate a decent amount of wealth prevents the fall to communism which destroys any incentive to be productive. It's a balancing act, and it's not at all simple.


We're going to have to agree to disagree on this one, because I'm not into endless thread debates. I'm going to restate my thoughts, feel free to disagree, but this is to clarify my position one more time. Anyone who ever stumbles across the thread in the future can make up their own mind.

" they most certainly are not parasites living off the backs of the productive as you wrongly imply"

You have projected speech onto me, probably from what you think my political views are : that's not what I said at all. In my island example, I don't doubt that the other half of the island are doing something productive, I just said that, in order for them to exist, the half collecting the food and water have to provide for them. It's not a chicken and egg situation : the first half have to be productive before the second half can share in the results. The analogy is that one half of the population is creating things, people are paying money for those things, and the other half is living off the excess value or money created. Government services are mostly by definition a net consumer of money, this is obvious otherwise the government would be self-funding by now.

Again, I'm talking about money, not benefits. Of course people benefit from government services, however, I'm talking about the measurement of GDP : which is a measurement of money, not benefits.

At least we agree that you can't just take from the people who produce endlessly and distribute it around. And I'm a big supporter of social safety nets like welfare and medical services. I just don't like to see the government becoming larger than the private sector in any economy.


> Seriously? Without a stable government enforcing property rights and the rule of law you wouldn't be able to conduct business reliably. Government provides the field business is played on, they have every right to a cut to pay for providing that field. Peace isn't free.

Some states manage to do those things for a lot less than 9.5% plus income tax.

The US federal, state, and local govts collect more per person than most EU countries (even after you deduct defense) and we don't get anywhere near the services.


Partly that's because of our fear of "socialism". We'd prefer to give away $50 in subsidies, allowing people to buy some sort of private service, versus having the government provide it for $30. See: EU countries' national health-care systems versus our Medicaid+Medicare+SCHIP+etc.


> See: EU countries' national health-care systems versus our Medicaid+Medicare+SCHIP+etc.

You're assuming that the US govt can efficiently provide services. (Its payment systems can cut a check cheaply, which is what the "Medicare overhead" numbers measure, but can be susceptible to fraud. Note that despite rampant fraud, it's harder to win a dispute with Medicare than it is with private insurers.)

The US govt currently spends more per resident than EU countries do on healthcare yet manages to cover a much smaller fraction of the population.

That's why I wanted to give Obama free rein over existing govt healthcare, including all govt employees (state and local too), and maybe even employees of companies that get >80% of their revenues from govt contracts.

That works out to well over twice EU spending (per capita) on covered folk. Since the promise of govt healthcare is cheaper and better, in years 2-4, we cut the per-capita budget by 5% (which is a bit over 20%, or less than the 30% savings promised by single payer advocates). At the end of that time, we'll know whether the US govt can provide healthcare.

After all, it doesn't matter whether other contries can do it, it matters whether the US govt can do it.


> After all, it doesn't matter whether other countries can do it, it matters whether the US govt can do it.

If they can do it, we can do it too. The reasons that we're so bad at it now are because we're doing it wrong because so many people are opposed to the very notion of socialism. But I understand your wanting them to prove it first by ramping up slowly.


> If they can do it, we can do it too.

Actually, no, not for useful values of "can do it".

Consider Microsoft and Google. Microsoft has lots of smart people, but Google can do things that Microsoft can't.

Yes, Microsoft is capable of doing those, but in some very real sense, it can't.

It's sort of like Bill Gates' phone number. I know it in some sense (4 digits of area code, 3 digits of prefix, and then 4 more digitis), but not in any useful sense.


I'm in the same boat as you, though not in California. I'm at the point where earning more money is not worth the extra time. I prefer to invest that time on enhancing efficiency. That lets me earn the same money with less effort, and the extra time improves my physical and mental health.

That way government workers might take 50% of my money, but they don't take 50% of my productive time on earth. If they push much harder then of course I will have to move, but so far I'm very happy here.


This is one thing I like about the UK tax code. I pay a lower rate of National Insurance (similar to your Social Security) as a self-employed person. 8% vs 11% for employees.


Thought experiment for the economically minded: Labor has a backwards-bending supply curve. Do heavily progressive tax rates flatten out the backwards bend?

(If this comment makes absolutely no sense to you, see http://en.wikipedia.org/wiki/Backward_bending_supply_curve_o... and http://en.wikipedia.org/wiki/Supply_and_demand for context).


California taxes and business red tape are why we chose Austin over Silicon Valley. Texas just seems a lot more business freindly in many ways.


I am definitely looking at Austin and Seattle, and partially-in-Nevada, as options to California.


There are few places on earth with the natural, intellectual and creative abundance of California. It's absolutely inexcusable that we are in this situation.


I agree. With all the brains, you'd think we wouldn't let the government abuse us so much.

perhaps its just the fact that California is so huge and local control over expenditures is really, really gone. Its much easier to use people when they're far away and not your neighbors. Its a lot harder to see exactly how you're being bled dry when there are 18 layers of obfuscation.


It suffers from the same issues that the federal government does: democracy doesn't scale. The larger the task of governing, the harder it is, the more room for graft and waste, rent-seeking and inefficiency.

The US is the largest economy in the world and last I checked California is the 5th. Places like Sweden have higher taxes, but they also have a much more manageable task of governance and more efficient public sectors. You put some tax money into the Swedish government and you might get some valuable services out of it. You give some to Uncle Sam or Uncle Arnold, and it is disappearing in some corporate/union/special interest pocket through some thousand-page bill.


exactly. the smaller the country, the better run it seems. I like Switzerland's model.

its impossible for someone to siphon off resources when the democracy consists of 10 people and almost certain to happen when there's 50 million.

Of course, the naysayers will tell you that complex societies are tough to manage and require more government, but that's bunk. It should require less government, as there is far less border per person to defend.


What if high taxation somehow contributed to make CA what it is?


I think smart, risk-taking people coming to California for its great climate, beautiful landscapes, and rich natural resources had more to do with it.

California had the biggest net exodus of people in 2008 according to the US Census. I doubt that is because of California's great climate, beautiful landscapes, and rich natural resources... I think to the extent high taxes and regulations are responsible for California being what it is, they are no longer serving the people of California's best interests.


I didn't leave California because of the taxes (I moved to another state with nearly identically high taxes). I left because, despite being in the 95th percentile of income nationally, I couldn't afford to buy a house in a decent neighborhood with decent schools.


What reasons can you think of for California being unable to build enough housing to keep prices affordable? Do you think zoning and property restrictions and regulations might be related? As someone who is interested in the California real estate market, I'm wondering what the fundamentals are that keep the prices so much higher than other states. It seems like earning money here and moving into a much larger house elsewhere might be the smarter move.


California has amongst the most extensive urban sprawl in the entire country, so it's strange to think of it as a place where zoning and property restrictions restrict supply. LA is world-famous for its urban sprawl and car culture! And in the Bay Area, you can drive from Millbrae to Gilroy while going through nothing but endless suburbs for 65 miles. Meanwhile, Portland has super-restrictive growth and zoning policies, and is much cheaper. So I think there are more factors at work.


The "decent neighborhoods" are fully built out in LA. New development is an hour drive (without traffic) from the interesting parts of the city. What priced me out of the housing market was a) extremely high demand in the areas of the city with decent livability and decent schools and b) the willingness of people to take on extremely risky loans to buy those houses. (Since I had this silly, old-fashioned idea that I would only buy a house I could afford with 20% down and a 30-year fixed, the initial monthly payments I was looking at were nearly twice that of the people doing 90/10 option ARMs.)


The smart, risk-taking people came to California because that is where all of the other similar people are. The first ones came here because for a while California had some of the best infrastructure and education system in the nation. Bar none. Prep 13 pretty much ended that dream and now we suffer through the consequent boom or bust state finance cycles, a dysfunctional statewide political system that entrenches political extremists, and an equally moronic voter initiative system that ends up causing more and more damage every year.

While there was a large net exodus in 2008 (and a similar one in 2000-2001) there were also massive inflows prior to the economic downturns associated with those years.


On the behalf of the other places on earth:

"I object!"


Part of the problem leading to the flat curve is that while California's rate is technically progressive, it ramps up very fast and is flat past that: all the brackets are below $45k.


I guess this is why only rich people care about tax changes, because the rules are so complex, poor people don't have the time to study them. Rich people don't have the time to study them either, but the differences can be so great, it is worth it for them to hire an expert.


I'd be more interested in the new effective tax rate in California or other "high tax" states.


ridiculously high. but at least those who work 80 hours a week aren't taxed more per hour than those who work 40. I guess there's some justice in the world.

you'd be surprised at the number of people who think just because you work more, you should pay more. as if one exists for the convenience of others


What do you mean about the 80 vs 40 hrs/wk? That working more will (naturally) get you more money, so you pay more taxes? Or some kind of "hard-worker" tax where they tax you based directly on effort? I haven't heard any of these proposals.


I was referring to the fact that worker A at Burger King making $5/hour for 40 hours shouldn't have to pay a higher tax rate on the extra hours than on the first 20.

Its simply crazy unfair that if spend the second 20 hours watching tv, you pay less for your government services AND you pay less per hour.

Personally, I'd prefer if we all paid for the government we used, rather than dumping the costs off on people who are more productive or lucky.

We really do not have the right to other people's property, not matter how much they make.

If we want something we haven't earned, we should try an ancient non-violent method of obtaining something. Its called "asking".


I'd be interested to see what income minus tax looks like.

It looks like there would be "income traps", where earning a higher base salary would actually leave you less well off. Good to see the USA rewarding hard workers!


There are only income traps if the marginal rate's >100% at any point, which it isn't here. Since the marginal rate's never above 44%, it means there's never a case when earning an extra $1 won't gain you at least an extra $0.56 in your pocket.


The numbers cited in the post (as he points out) do not take into account all the antipoverty programs we have. When you take those into account you get a graph like this:

http://4.bp.blogspot.com/_djgssszshgM/SvtscpywvOI/AAAAAAAABD...

There actually is a dead zone. Which is horrible.


Part of the difference is also that he's looking at single people, while your linked graph is for a family of three, and there are much more generous grants/transfers for families.

There has been some effort to get rid of dead zones by changing thresholds into phase-out zones, but not everything's been changed, and some programs probably need more gradual phase-outs, especially if you consider their impact when taken together. There's an issue though that gradual phase-outs are hard to structure in a way that's politically popular: most people seem to have a mental phase-out that's fairly steep, so it's popular to give food stamps to a family of 4 making, say, $18k, but unpopular to give food stamps to a family of 4 making, say, $30k. But if you phase them out from 100% to 0% within a $12k range, you produce a significant implied tax over that range. Either the phase-out has to start so low that genuinely poor people get <100%, or it has to go up high enough that people who no longer really qualify as poor get some low but non-zero amount.


Luckily anyone smart enough to figure out the existence of the dead zone is smart enough to be making well over $40K anyway.


A lot of people don't understand what marginal tax rate means and how taxes work in that regards. I'm guessing the parent was confusing it for average tax rate.


Yep. I was.


I probably made a whole bunch of mistakes here, never mind the major pieces I omitted

Harms credibility.




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