Friday, November 30, 2012

Why Passing the “Middle-Class” Tax Cuts Benefits the Wealthy, Too

November 14, 2012
Posted by: Chuck Marr

President Obama today clarified an important, and often misunderstood, point: the so-called “middle-class Bush tax cuts” also benefit high-income people. So, if the House were to approve the Senate-passed bill to extend the middle-class tax cuts (as the President favors), “that would prevent any tax hike whatsoever on the first $250,000 of everybody’s income,” he said at his press conference.

That’s because the middle-class tax cuts do not just apply to people making less than $250,000 but to incomes — for everybody — up to $250,000 ($200,000 for singles).

In fact, as this chart based on Urban-Brookings Tax Policy Center data shows, extending the “middle-class” tax cuts would be worth about $12,000 next year to people making between $200,000 and $500,000.

----- [see link above for chart]


The following link shows tax brackets and rates under several scenarios.
Notice that most people don't pay the same tax rate on their whole income.
There is no tax on your standard exemption and your taxable deductions.
Your taxable income is divided into brackets. You actually pay different rates on different parts of your income. You usually don't have to worry about it because the IRS has already done the calculations and provided tax tables to use.

So when we are told that people who have an income of $398,350 and up have a tax rate of 35%, actually what is happening is that the amount of their income included in exemptions and deductions is zero, the amount of their taxable income up to $398,350 is less than %35, and only the part of their taxable income over $398,350 is taxed at 35%.

Scenario 1: Tax cuts under the extension of the Bush-era tax cuts for all

Rate Single Filers Married Joint Filers Head of Household Filers
10% $0 to $8,950 $0 to $17,900 $0 to $12,750
15% $8,950 to $36,250 $17,900 to $72,500 $12,750 to $48,600
25% $36,250 to $87,850 $72,500 to $146,400 $48,600 to $125,450
35% $398,350 and up $398,350 and up $398,350 and up

Scenario 2: Tax brackets under the expiration of the Bush-era tax cuts for all ...

Scenario 3: Tax brackets under the expiration of the Bush-era tax cuts for high-income ...

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