Does the hike on those earning $200K begin on dollar one?

[PE]

Someone wrote the following to me on a message board. According to this (linked) Herritage Foundation article, taxes will be raised not just on the income over $200K, but on all income for the $200K earner starting with the first dollar earned. It was my understanding that just the top marginal rate would change. If my understanding is true, then someone making $201K will still take home more than someone making $199K. If this guy's understanding is true, then that individual will be hit with a massive tax increase, not just for the income over $200K but the income up to $200K will also be taxed higher as well. In that case, it would be much better to earn $199K than $201K.

I have heard Kerry describe his tax plan in town halls and my understanding is that just the top marginal rate would change. I can't, however, find any documentation for this.


That’s NOT true PE, according to what I’ve read, http://www.heritage.org/Research/Taxes/wm483.cfm?render...
all the income of someone earning over $200K/year is taxed at a higher level. “Their first dollar is taxed at 15 percent rather than 10 percent (the current Bush tax cut level), and their last dollar is taxed at 39.6 percent rather than 35 percent.”

They pay the Clinton era Cap Gains rate and Dividend Income rate "They lose the benefit of lower taxes on capital gains and dividend income. These income streams currently are taxed at a 15 percent rate, and Senator Kerry’s plan calls for the rate to jump to 20 percent for capital gains and to the pre-2001 ordinary income tax rates of 36 and 39.6 percent for dividend income.”

And they lose the marriage tax relief and child dependency expansion. "Taxpayers earning above $200,000 also lose the expanded child tax credit and marriage penalty relief and would once again be subject to the phase-out of personal exemptions and itemized deductions."

$1 over $200,000 and you lose the marriage relief, the expanded child credit, the lower Cap Gains rate and Dividend Income tax rate AND have EVERY DOLLAR taxed at pre-Bush cut levels! That’s not a small increase of 4% only on that income over $200,000, that’s a massive tax increase on anyone who crosses that artificial threshold.

[RobertSeattle]

1. Sounds like a Moran who doesn't understand marginal rates

[AndyP]

4. I don't understand marginal tax rates

I hate being a moron :( :dunce:

[fugue]

2. I know this answer isn't the one you're looking for, but . . .

Even if (flamers: please note the "if"!) your opponent is right, I'm supposed to care that someone who earns $200,001 in a year does worse than someone who earns $199,999?

They're both doing fine. Now, whether someone making $19,999 is doing better than someone getting $20,001, that might have a real impact on someone's basic quality of life. . . .

[Massacure]

3. That is a bunch of BS

The person who makes $200,001 is going to pay $0.08 more than the person who makes $199,999. He makes it sound like they are going to pay $8,000 more, which is wrong.

[German-Lefty]

5. I'm very sure you're right - here's what I found digging around

I've found the income tax brackets Bush changed (very bottom of both docs). The most important thing to note is the top bracket 39.1% was removed leaving just a 35% one.
Here's the i1040 from 2003:
http://www.irs.gov/pub/irs-pdf/i1040tt.pdf
Here's the i1040 from 2001:
http://www.irs.gov/pub/irs-01/i1040tt.pdf

I'm pretty sure what Kerry means he is going to put back in place is the 39.1% at 297,350 and the 35.5% at 166,500.

http://www.johnkerry.com/pdf/economic_plan.pdf (page 8/9)
Rollback Bush Tax Cuts Restore top two rates = 337 billion over 10 years

It would be nice to see a graph with %tax vs. income. We could draw the curve of the old brackets, Bush's, and Kerry could define his.

There is definitely no way that the guy earning 200K is worse off than the guy earning 199.99999K. That would be dumb.

[Lydia Leftcoast]

6. Every dollar taxed at pre-Bush levels!

Even if that were true (which it isn't), all I'd say would be, "Poor babies!"

Even the Clinton era tax levels were much, much lower than the Eisenhower and Kennedy era tax levels.

[Robert Oak]

7. true, Eisenhower tax structurre looks socialist

yet country was booming, booming, booming.

Interesting.

Not sure exactly but I thought I saw a 71% tax bracket in Eisenhower
years.

[Lydia Leftcoast]

8. Here's what I found about JFK's tax cut

"Americans were paying much higher tax rates in JFK's time -- 50 percent in the $32,000 to $36,000 income bracket, and 91 percent on marginal income over $400,000. Today the highest individual income-tax bracket is 38.6 percent. As a nation, we are not overtaxed."

http://seattlepi.nwsource.com/opinion/122653_means20.html

Keep in mind that this is the era when $4,000 a year was a middle class income, gas was 25 cents a gallon, candy bars were a nickel, a Coke was a dime, jeans were $5, and houses could be had for $15,000. In other words, wages and prices were eight to ten times lower than they are now. So we can assume that Kennedy's tax brackets were equivalent to taxing people $320,000-360,000 at 50% and marginal income over $4 million at 91%.

[unblock]

9. partly correct, but mostly bu*sh**.

first and foremost, i'm not certain why we should be enormously sympathetic in the tax code to those making just over $200,000 adjusted gross income. nevertheless....

it's true that if you lose certain benefits such as the child credit the instant you cross $200,00 agi, then you would take home less by making more. however, kerry's proposal is not yet crafted into legislation and campaign plans are notoriously vague on the details. typically, such benefits are phased out as agi increases, rather than abruptly ended. however, some benefits do indeed have hard cutoffs, such as certain retirement plan contribution limits.

bottom line, though, is that if your agi is just over $200,000, then you can afford to pay an accountant a few bucks to help you out. in late december, figure out if your agi will be around $200,100. if so, donate a couple hundred to charity, and none of this is a problem.

[bonddad]

10. According to section 1 of the 2004 IRS Code

First, yes I have the code right here. I am waiting my bar results with an emphasis in tax and business law. I am a total geek. And I use to be so cool....

Anyway, individual taxpayers above level X pay a flat rate specified in an amount of dollars plus a fixed percentage of earnings over that amount. For example, a person making over $200,000 would pay $50,000 plus a percentage of earnings over $200,000.

While I don't know the exact wording of the Kerry proposal, I am assuming it would work in a similar fashion. So, a taxpayer making over $200,000 would pay a fixed amount plus a percentage of earnings over a specific amount.

[Lydia Leftcoast]

11. Basically, all that information does is

figure the math for you. Instead of you having to figure 10% on this amount and 15% on this amount, etc., it simply tells you what the figure is for $200,000 if you add up all those percentages.

[Lefty48197]

12. They're not called the hermitage foundation for nothing

.

[kleptocrat]

13. no, you don't pay from dollar one

We've never had a tax system like that - it's always a marginal rate. A marginal tax rate is the rate you pay on your next dollar of income.

Whoever got that idea doesn't know what he's talking about.