I assume that’s what they call them in America, anyway.
I thought the handy dandy thing about percentages is that they are proportional. So the more you earn, the higher the fixed amount is that gets taken out as tax.
Why should it be that the richer you are, the higher the percentage? That seems weirdly unfair. It means that someone at the upper end of one tax bracket takes home more nett than the people at the lower end of the next tax bracket, despite earning less gross.
This just seems wrong to me. Doesn’t it seem wrong to you knowledgable folk?
This might very quickly wander into GD, but to me it seems fair.
I don’t know about the American or the Australian income tax system, but the German one (pretty progressive) is as follows:
The first 6,000 euros or so of your income are tax free. If your income is higher than that, there are tax brackets with specified tax rates, but the rates don’t apply to your total income but only to that part of your income that’s within this bracket.
I don’t have the exact numbers handy, but let’s say we have $6k tax free (first tax bracket). Next tax bracket is > $6k through $10k, rate 10 %. If I earn $7k, I don’t pay any taxes for the first $6k and 10 % on the remaining $1k, $100 in total.
Let’s say next (third) tax bracket is > $10k through $20k, rate 15 %, and fourth tax bracket, > $20k through $30k, rate 20 %. If I earn $25k, I don’t pay any taxes at all for the first $6k, 10 % on the $4k that are in the second tax bracket, that’s $400, and 15 % on the next $10k that are within the third tax bracket, that’s $1,500. The last remaining $5k are in the fourth tax bracket, I have to pay 20 % on them, that’s $1,000, so all in all I have to pay $0 + $400 + $1,500 + $1,000 = $2,800.
(Numbers may seem weird and they’re a total WAG, but I hope I’ve made clear what I was thinking of).
So in the end, if you’re at the lower end of a higher tax bracket you’ll end up with more net money than someone at the upper end of the tax bracket below yours, because the bracket rate does not apply to all of your income but only to that part within the particular bracket.
I’m not sure how it works in Australia but here’s the Canadian method.
You taxes are a cumulative measure of the brackets that you lie both in and over. Example Canadian Tax Rates
So for someone making $33,000 would pay 16% on $32,183 + 22% on $817 (being the remaining amount of income). Now I’ve neglected the whole “taxable income” which is fine as it’s fixed regardless of your income.
This way the brackets can’t overlap and the tax system can be considered progressive. Whether it is or not is a completely different thread.
They don’t take home more nett than the people just above them; I think you misunderstand the system.
Let’s look at an example: John earns $48,000 per annum and Ann earns $52,000 per annum.
On the first $6,000 of income they pay no tax at all.
For every dollar between $6000 - $20000 they pay 17c on those dollars. So for both John and Ann thats:
0.17 x (20000 - 6001) = $2380
So we put aside $2380 for the tax man and continue the calculations.
For every dollar between $20001 - $50000 they pay 30c on those dollars (but only on those dollars between $20000 - $50000 because the first bracket has already been taxed).
For John thats:
0.30 x (48000 - 20001) = $8400
So now John’s total tax is $2380 + $8400 = $10780 and he doesn’t pay anything else.
For Ann thats:
0.30 x (50000 - 20001) = $9000
So now Ann’s total is $11380 but we still have to keep going for her.
For every dollar between $50001 - $60000 Ann pays 42c on those dollars (but only on those dollars between $50000 - $60000 because the first two brackets have already been taxed).
For Ann thats:
0.42 x (52000 - 50001) = $839.
So now Ann’s total tax is $2380 + $9000 + $839 = $12219 and she doesn’t pay anything else.
Aha. I didn’t know that was how it works. I guess they simplify it when they talk about this generally.
Or maybe they do it differently in New Zealand. Since being in Australia, I’ve always used an automatic software application to do my taxes so I didn’t know how the calculations worked.
It most probably works the same in New-Zealand. I’ve met plenty of people who had the same misconception you had in France (where it works the way described by other posters) and a couple of times, an american poster told me it just didn’t work that way in the US (though it does). It’s a very common misconception.
Sometimes I wonder how people could pay taxes all their live and still be clueless about this issue. For instance, someone (in his 50’s) telling me that since he had a raise, it had significantly less money left due to him entering a higher bracket.
The U.S. Federal Tax Code is a creation of, by and for politicians. It isn’t meant to be “fair,” and as long as it’s controlled by Congress, it’ll never be “fair.”
Consider that the top half of wage earners in the U.S. pay more than 96% of all income taxes, and that the top 1% of wage earners, who are taking in 20.81% of the total AGI, pay 37.42% of all income taxes.
It reminds me of the bank robber who, when asked why he chose banks to steal from, replied, “That’s where the money is.”
Why progressive tax rates (i.e., a tax rate that increases as income increases)?
Why bracketed rates?
The answer to #2 is that *if[/] you have progressive rates, you must have brackets, unless you want to create several hundred thousand or more unique tax rates for each increasing dollar of income. Yes, this does create inequities within a tax bracket.
The answer to #1 is not about accounting but about a political philosophy of the commonwealth. The idea behind a progressive tax rate is not to punish the wealthy by taxing them more, but to lighten the load on the low income by taxing them less. The low income have very little dispoable income, or no disposable income at all. Meanwhile, the proportion of disposable income that the wealthy have is very high.
The basic idea behind tax brackets is “marginal value”. It means that even though someone wealthy pays a higher proportion of income in taxes, the end effect on his lifestyle is not as burdensome as for someone lower down the ladder.
Someone who earms a million a year and has to pay 50% of it in taxes still has plenty left. For someone who earns 10 thousand a year and pays 5%, an extra hundred dollars that doesn’t have to be paid in taxes makes a considerable difference.
If we flattened the tax rate to 15%, the rich guy would gain $350,000 in spending money, while the poor one would lose $1000. Sure it’s ony a thousand but for him and his family that’s ahuge impact. The impact of the extra 350,000 is mathematically similar but in real terms it is not the same at all.
Once you acknowledge that some people are far enough down the economic ladder that they shouldn’t have to pay any income tax at all, then you are pretty much led inevitably to a graduated system. The alternative would be a situation where above some threshold a citizen go from no taxes (poverty) to payiing “his full share”, which would push his real income back into poverty.
I see. And the fact that the roughly 50% of U.S. taxpayers who pay little or no tax have precisely the same voting power as the 50% who do doesn’t enter the equation, right?
I fully agree that it’s amazing how many people don’t understand how tax brackets work. However, I suspect one cause of it may be overly simplistic algorithms being used to calculate tax deductions on paychecks. It may well be that the man in question did take home less after his raise, because the company was deducting more (that is, they increased the tax deduction more than they needed to). He’d get the money back as a tax refund at the end of the year, but it wouldn’t register as being due to his raise, and he’d persist in thinking he’s actually earning less.
Polls have shown again and again, the lower the income, the less likely the person is to vote. About half of all eligible voters in America don’t vote in presidential elections. In non-presidential elections, the percetange is even worse.
Your implication (or is it a flat-out statement?) is that everything is balanced by the fact that the lower 50% votes less. So, since you’ve implied it, I assume you have backing to show that the lower 50% consumes only 4% of the vote, to match the numbers **TBone2 ** posted?
The last time we had a go around on this jshore showed that the total federal tax structure wasn’t all that progressive at all and that if state and local taxes were include the overall tax structure of America is most likely a regressive scheme, that is- one where the poor pay a higher percentage in taxes then the rich. So lets realize that the federal income tax is hardly representative of taxation in America.
At least in the U.S., there can be some truth in this, although you have to look at the circumstances.
A guy who earns $50,000 a year gets a raise beginning October 1 to $60,000 (because he got pictures of the CEO in a compromising position or something). His actual taxed income for the year (before all the standard adjustments) is going to be $52,500. However, if he does nothing to pre-calculate his taxes and does not submit a modified W-4 to the IRS to change his withholding amount, when the next payroll runs, the program is going to compute his withholding taxes on $60,000 and withhold more cash than it needs. He will get the money back as a refund when he files the following year, but there are cases where his take-home pay will actually shrink due to a raise. (No U.S. tax will cause him to actually lose money annually because of a pay raise, but many people do not pay enough attention to either their gross income or their taxes to understand what is happening.)
His figures are his own, not mine. I have nothing to say one way or another about them. But in response to your statement, I will say this: if the lower 50% consumes 49% of the vote, that’s still a minority, isn’t it?
We also need to remember that, at least in the US, many wealthy people are not paid in ordinary wages (which are also subject to payroll tax).
Once you get high enough on the food chain, a lot of your compensation is on stock, various types of bonuses, allowances for things, etc. This setup gives the wealthy a significant tax advantage over someone paying the payroll taxes and income tax on every dime he brings in.
