Progressive taxation

There seems to be a nasty trend among Americans of every stripe that just don't know how our tax system works.  People live in terror of going into the next tax bracket, thinking they'll actually bring home less money if they do that than if they had made less money in the first place.  This is wrong.  This is stupid.  Here's how it works.

Let's imagine that there are two tax brackets, $0-10,000 and $10,000 and up.  The tax rate for the first tax bracket is 10%, the rate for the second tax bracket is 50%.  Let's say there's a person that makes $10,000.  I'd like to hope that everyone will say this person will pay $1,000 in taxes.  Clear, straightforward.  Easy.

But now let's add a second person who makes $10,001.  This is where people get all discombobulated.  Many people will say that because the wages are in the next tax bracket this person will have to pay $5,000.50.  Unfair!  Ridiculous!  Well, that's right, because it's wrong.  The second person will pay, in fact, $1,000.50, a whopping 50 cents more than the first person.

How can this be?  It's because of how the progressive tax brackets work.  Each tax bracket applies to everyone equally.  Everyone in the above situation would pay the 10% rate on the first $10,000 they make.  Those that make more than $10,000 would pay the 50% rate only on the money above $10,000 - in the example, $1.

Sure, the United States Federal tax rates are slightly more complicated, with 7 brackets and 4 qualifications, but it's still really not that bad.  And the next time you hear about people wanting to increase the rate on the top tax bracket, try to realize that it just won't affect you at all.