[kscaldef]

I would say, after reading the original post, that even this is unclear. Note that he says "Our combined income exceeds the $250,000 threshold for the super rich (but not by that much)" and also "At the end of all this, we have less than a few hundred dollars per month of discretionary income". I get the familiar feeling that Todd Henderson does not actually understand the concept of marginal tax rates. It seems like he's got enough buffer in his budget to handle a couple extra percent on the "not that much" he makes over $250k.

[gnaritas]

I've found most people don't understand marginal tax rates. Many seem to think that jumping up into the next tax bracket by even one dollar will make them make less money than they made in the lower bracket on less pay.

I was stunned one day when I heard my boss, a small business owner, say something to this effect over lunch, as well as another co-worker. I told them they didn't know what they were talking about and that's not how taxes work and he cited his years running a business as a reference and claimed I was naive and clearly wrong.

I bet him he was wrong and he took me up on it; after lunch I took him to our accountant and had him explain it, then pointed him at Wikipedia. Amazing that one can be an entrepreneur for 15 years and not know this.

Part of the problem is how we talk about taxes, we say things like tax cut for people making less than 50k rather than the more correct tax cut for the first 50k of your income. The former seems to be talking about someone else while the latter clearly means you too, while avoiding the us vs them mentality that seems to turn off most people's brains. I've made it a point to make sure everyone I know understands marginal taxes now.

[jacobolus]

It seems to me (as a biased observer) that a big part of the language/understanding deficiency here has just been that the GOP and its very effective messaging apparatus deliberately uses language that increases that confusion, and the Democratic Party is incompetently happy to adopt the same language, despite the clear harm to their platform.

[CWuestefeld]

You may be right, but it's also not as simple as you make it sound. There are a number of discontinuities in the bottom line rates that can make a much larger difference than an increase in one's highest marginal bracket. Especially around the income that the Henderson refers to, when you're likely to be hitting the AMT, it's definitely not a smooth function.

For myself, a year and a half ago, this happened. There was a conjunction of several changes (particularly hitting AMT, and a significant decline in mortgage interest deduction, and a good chunk of additional one-time "unearned" income) that together made it appear that the marginal rate on the income (relative to the previous year) was on the order of 60+%.

FWIW, I know that it's a (hideously) complex calculation with many, many factors, and what I was looking at thus wasn't actually the marginal rate as such. Nevertheless, what I experienced was, financially, the equivalent of that.

Your point portrays this as simple by assuming that the income tax is represented by a simple set of tables, but it's much more byzantine than that. All this added complexity can sometimes make your best-case scenario turn much worse.

[kscaldef]

It's true, there can be a lot of complexity. Maybe Mr. Henderson ought to take some of his extra few hundred dollars a month and meet with an accountant so he has a better idea of how he could be affected.