What’s the dumbest tax idea being considered?

Can’t be sure, but here’s a contender.

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The NY Times reports:

Congressional negotiators, trying to avert a fiscal crisis and raise “revenue” from the wealthy.

One idea is to tax the entire salary earned by those making more than a certain level — $400,000 or so — at the top rate of 35 percent rather than allowing them to pay lower rates before they reach the target, as is the standard formula.

Under the existing tax code:

  • The first $17,400 of adjusted gross income for a couple filing jointly is taxed at 10 percent.
  • Above $17,400, up to $70,700, income is taxed at 15 percent.
  • Income between $70,701 and $142,700 is taxed at 25 percent.
  • Gross incomes up to $217,450 are taxed at 28 percent. The next bracket, 33 percent, ends at $388,350 for couples.
  • The top bracket hits adjusted gross incomes only above $388,350.

Currently, all taxpayers get the advantage of the lower tax rates below the top threshold, whether they earn $40,000 or $40 million.

Let’s think about this bonehead scheme for a moment.

Say a couple that files jointly earns $399,999.

Their income tax liability would calculated:

  • 15% of the $53,300 that’s between $17,400 and $70,700 … that’s $7,995
  • Plus 25% of the $71,999 that’s between $70,701 and $142,700 …  that’s $18,000
  • Plus 35% of the $257,300 that’s between $142,700 and $399,999 …  that’s $90,055

Grand total $116,050 … for an effective tax rate of 29%.

But, under the rumored scheme, this couple would have an easier tax calculation … their tax liability would be 35% tomes $400,000 … for a grand total of $140,000

Again, think about it ….

By earning $1 more – going from $399,999 to $400,000 – the couple would have their tax liability increase by by 21%$23,950.

Now, that’s some marginal tax rate.

Am I missing something?

* * * * *
Follow on Twitter @KenHoma

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