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View Diary: Do YOU understand how tax brackets work??? (124 comments)

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  •  OK, I'll simplify it even more. (5+ / 0-)
    Recommended by:
    Robobagpiper, ferg, Pluto, fumie, terrypinder

    Let's suppose that there were only 2 tax brackets:

    10% for taxable income up to $100,000
    20% for taxable income above $100,000

    1. If your taxable income was $50,000, you'd pay $5,000
    0.1 x 50,000 = 5,000

    2. If your taxable income was $100,000, you'd pay $10,000
    0.1 x 100,000 = 10,000

    3. If your taxable income was $150,000, you'd pay $20,000
    0.1 x 100,000 = 10,000
    0.2 x 50,000 = 10,000
    10,000 + 10,000 = 20,000

    4. If your taxable income was $200,000, you'd pay $30,000
    0.1 x 100,000 = 10,000
    0.2 x 100,000 = 20,000
    10,000 + 20,000 = 30,000

    Those who don't understand this THINK that they'd be paying $30,000 in case #3 (instead of $20,000), and $40,000 in case #4 (instead of $30,000). They'd be off by $10,000 in both cases.

    Worse, they THINK that if they made $100,000 this year (paying $10,000), that if they make $100,001 next year they'd be paying double that ($20,000), when in reality they'd be paying just $0.05 more.

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