Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.

Yesterday I wrote a post that described the effect of letting the Bush tax cuts on the rich expire. Thanks to the fact that rates would only increase on income over $241,000, it turns out that the effect on anyone earning $1 million or less is pretty modest:

Several commenters pointed out that this table only applies to ordinary income, and that’s true. The Bush tax cuts also lowered rates on capital gains and dividends, and Obama would let those go back up on high earners. In addition, Obamacare includes a 3.8 percent surcharge on investment income over $250,000. All of this adds to the tax bill for the wealthy, but it doesn’t change the basic issue here: moving up from one bracket to another would still only affect income above that bracket. And tax rates on capital gains, which are mostly utilized by the rich, would still be well under the rates for ordinary income. As usual, TPC has all the details if you want to dig into this further.

Beyond that, there’s a fair amount of additional complexity for upper middle-class earners up to about $200,000 or so, thanks to a wide array of tax credits and deductions that phase out at various income levels. Megan McArdle provides the chart below, which shows some of the most common ones. The red lines indicate where the phaseouts are complete:

None of this really affects our discussion of people with incomes over $250,000, but it does illustrate the fact that moving across a phaseout line can sometimes have a significant effect on your taxes:

For example, a married couple filing jointly in 2013 with two kids at home and one in college who go from making $100,000 to $125,000 loses a $2,000 child tax credit and $1800 worth of HOPE credit, an increase of almost 4% in their effective—not marginal—tax rate. The marginal tax rate on their extra earnings is 15.2% just from deduction losses; that comes on top of the 28% they’ll be paying the federal government in income taxes, and whatever state income tax they owe.

I don’t have any real point to make here. I just wanted to acknowledge that my income tax chart only showed one piece of the picture. It’s the most important piece for most people who earn under $1 million (above that, investment taxes tend to become more important), but there are still plenty of little gotchas in the tax code that can have funny effects as they phase in and out.

TIME IS RUNNING OUT!

We have an ambitious $350,000 online fundraising goal this month and it's truly crunch time: About 15 percent of our yearly online giving usually comes in during the final week of the year, and in "No Cute Headlines or Manipulative BS," we explain why we simply can't afford to come up short right now.

The bottom line: Corporations and powerful people with deep pockets will never sustain the type of journalism Mother Jones exists to do. And advertising or profit-driven ownership groups will never make time-intensive, in-depth reporting viable.

That's why donations big and small make up 74 percent of our budget this year. There is no backup to keep us going, no alternate revenue source, no secret benefactor. If readers don’t donate, we won’t be here. It's that simple.

And if you can help us out with a donation right now, all online gifts will be matched thanks to an incredibly generous matching gift pledge.

payment methods

TIME IS RUNNING OUT!

We have an ambitious $350,000 online fundraising goal this month and it's truly crunch time: About 15 percent of our yearly online giving usually comes in during the final week of the year, and in "No Cute Headlines or Manipulative BS," we explain why we simply can't afford to come up short right now.

The bottom line: Corporations and powerful people with deep pockets will never sustain the type of journalism Mother Jones exists to do. And advertising or profit-driven ownership groups will never make time-intensive, in-depth reporting viable.

That's why donations big and small make up 74 percent of our budget this year. There is no backup to keep us going, no alternate revenue source, no secret benefactor. If readers don’t donate, we won’t be here. It's that simple.

And if you can help us out with a donation right now, all online gifts will be matched thanks to an incredibly generous matching gift pledge.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate