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Many Americans simply don't understand how tax brackets work.  If you're an accountant, you'll get this quiz right.  If you follow tax policy closely, you'll get this quiz right.  If you do your own taxes and pay attention to how the numbers work, rather than just following instructions blindly, you'll get this quiz right.  Otherwise, I bet you'll get it wrong.

You need to understand this key component of tax policy to participate intelligently in the crucial political debates that lie ahead.  Conservatives have been counting on your confusion about this issue for decades; disappoint them.

For the quiz, we'll stick to a simple example.  The core principles apply to other situations as well.

Consider taxpayers whose filing status is single and whose income is all regularly taxable (they earn no money from qualified dividends and long-term capital gains).  Let's consider the taxable income for those taxpayers -- the income after all deductions have been applied.  In the year 2012, the 25% tax bracket applies to taxable income between $35,350 and $85,650.  Suppose that tax bracket were to keep the same boundaries in 2013, but the tax rate were to go up to 28% for that tax bracket.  Please take the poll as if it were a quiz; I'll put the answer in the comments.

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Poll

Who would pay more taxes if the tax rate increased for the $35,350 to $85,650 tax bracket?

25%18 votes
7%5 votes
67%48 votes

| 71 votes | Vote | Results

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Comment Preferences

  •  The answer (SPOILER ALERT) (0+ / 0-)

    The last option is correct: if the tax rate increased for the $35,350 to $85,650 tax bracket, all taxpayers with taxable income exceeding $35,350 would pay more taxes.

    A tax bracket applies to the portion of a taxpayer's income that falls within that tax bracket.  So, for example, in the 2012 tax year, a taxpayer whose filing status is single and who has a taxable income of $900,000 pays:
    10% of $8,700 for the lowest tax bracket; plus
    15% of ($35,350 minus $8,700) for the next tax bracket; plus
    25% of ($85,650 minus $35,350) for the next tax bracket; plus
    28% of ($178,650 minus $85,650) for the next tax bracket; plus
    33% of ($388,350 minus $178,650) for the next tax bracket; plus
    35% of ($900,000 minus $388,350) for the highest tax bracket.

    Such a taxpayer is paying the highest tax rate only on the last $900,000 minus $388,350 = $511,650 of taxable income.  Another way to look at this is that any tax cuts in lower tax brackets also help taxpayers in all higher tax brackets.

  •  I think your first choice is a little misleading (1+ / 0-)
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    Ordinary Average Blogger

    Certainly people in that group would pay more taxes.  I think you are trying to say that choosing that option means that people making more than $85,650 would not pay more in taxes.  The confusion is that the first answer is a subset of the third answer, so they are both correct; it's just that the first answer isn't a complete answer as to everyone who would pay it.  You could make it clearer by adding "but not people making more than $85,650."

  •  People are doing great on this quiz (0+ / 0-)

    I am impressed by the number of people getting this right.  Daily Kos readers seem to be more informed than the general public, which shouldn't be a surprise.

    But the 10 out of 41 people who are getting this wrong (as of this writing) are a symptom of the confusion that Republicans spread on this issue, with little clarifying analysis from the mainstream media.

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