Unless you have lived under a rock, you may have heard a lot of talk about the “Fiscal Cliff” and “marginal tax rates.” The “Fiscal Cliff” is when Federal marginal tax rates for all income levels go up (end of the Bush Tax Cuts) and automatic spending cuts go into place. In addition, there other provisions that expire as well. This all occurs on 1/1/2013.
So what are these marginal tax rates? They are a set of brackets with specific tax rates based on income thresholds. The higher the bracket, the higher the rate. Below is an example:
|2012 Marginal Tax Rates, Married Filing Jointly|
|If taxable income is:||The tax is:|
|Not over $17,400||10% of adjusted gross income|
|Over $17,400 but not over $70,700||$1740 plus 15% of the excess over $17,400|
|Over $70,700 but not over $142,700||$10,605 plus 25% of the excess over $70,700|
|Over $142,700 but not over $217,450||$35,675 plus 28% of the excess over $142,700|
|Over $217,450 but not over $388,350||$60,686 plus 33% of the excess over $217,450|
|Over $388,500||$128,205 plus the 35% of the excess over $388,500|
Before applying the marginal tax rate to income, the following steps are performed:
- First, gross income must be determined, this includes: salaries, commissions, bonuses and gross income from business.
- Subtract exclusions from gross income. Examples of exclusions include gifts and inheritances, life insurance proceeds, welfare payments, employee fringe benefits such as health care premiums, and child support payments.
- Next, deductions are subtracted “for” adjusted gross income. Some of these include business expenses, contribution to retirement plans, alimony, interest on educational loans, and contributions to a Health Savings Account.
- Deductions “from” adjusted gross income are then subtracted. Whatever greater the amount, itemized or the standard deduction.
- Finally, the adjusted gross income is applied to what is called “marginal tax rates.” To calculate the tax bill, let’s use the example of a family with an adjusted gross income of $392,00. Using the table listed above up, all income up to $388,350 is taxed at 33% ($128,205). The remaining $3650 is taxed at 35%. The total marginal tax would be $129,483 ($128,205 + $1278). Keep in mind, this does not include capital gains on investments, this is a separate calculation added on to the total tax.
Obama and the Democrats want to raise the top rate from 35% to 39.6% and keep the rest of the rates the same along with very few spending cuts. The top rate would be for a single person making more than $200,000 per year and a married couple filing jointly making more than $250,000 per year. This does not include the added 0.9% Medicare tax increase for the “rich” from “Obama Care” which essentially means he wants a top tax rate of 40.5%.
Here is the problem. Even if you raised the top rate on the “rich,” the dollars collected would be about 80 billion a year, that is enough to run the government for about two weeks, but we have a 1.1 trillion dollar budget!
I find it ironic that those who voted for Obama want the government’s hands out of the womb (abortion), but feel that it is ok to keep their hands in other people’s wallets.
Question(s): What do you think would be the benefit of raising taxes on the “rich” even though the revenue raised would only fund the government for two weeks?