Wednesday, September 10, 2008

Bayes' Rule and Tax Hikes for the Rich

This is interesting. Keep in mind it's only for the 35% bracket. I guess that's why nobody's made a "read my lipstick" comment.

CBS News - Not biased, just dumb

I can't believe this from CBS NEWS - http://www.cbsnews.com/video/watch/?id=4433164n

The family just over 200k in income owns a business, and currently fall in the 28% bracket. They estimate income for next year to be a bout 213k and they "worry" about their income going into what is currently the 33% bracket, the second-highest bracket, and the lowest bracket for which Obama's plan would raise taxes. The increase for this bracket begins to offset the increases from lower brackets at about 250,000 in income, but here's the point.

Their worry was that, with next year's cutoff for the highest bracket proposed at 200,300, that they would pay "another 8% of their income" in taxes. Not true. Most of their income is still going to be taxed at the lower-bracketed rates and only their income ABOVE 200,300 will be taxed at the higher rate. In fact, with Obama's overall restructuring plan, the TAX CUT that family would get on their incomes UP TO 200,300 would more than offset the portion of their income that falls in the higher bracket

YOU ONLY PAY THE GIVEN RATE FOR THE PORTION OF YOUR INCOME THAT FALLS IN A GIVEN RANGE. Here are the tax brackets, and we can calculate the net impact of raising the next-to-highest bracket from 33 to 36, assuming no other changes (and without applying the built in cutoff adjustments for 2009):
Marginal Tax Rate Single Married Filing Jointly or Qualified Widow(er) Married Filing Separately Head of Household
10% $0–8,025 $0–16,050 $0–8,025 $0–11,450
15% $8,026–32,550 $16,051–65,100 $8,026–32,550 $11,451–43,650
25% $32,551–78,850 $65,101–131,450 $32,551–65,725 $43,651–112,650
28% $78,851–164,550 $131,451–200,300 $65,726–100,150 $112,651–182,400
33% $164,551–357,700 $200,301–357,700 $100,151–178,850 $182,401–357,700
35% $357,701+ $357,701+ $178,851+ $357,701+

Under the current plan, this individual pays: $0.1*(15650) + $0.15*(63700-15650) + $0.25*(128500-63700) + $0.28*(195,850-128,500) + $0.33*(213,000-195,850) = $49,019, an average rate of about 23%. Ignoring the scheduled shift in the brackets (to account for inflation and stave off "bracket creep"), then for that same family the tax increase for the last bracket only applies to PART of their income, so they pay 49,400, 381 bucks more, but not 8% of their income more, and that ASSUMES they wouldn't benefit from the tax CUTS to the other portions of their income in the plan, which they would at a net gain to them.