The Rich People Who Don't Know How Tax Rates Work

Reporting on Politics and Policy.
Nov. 19 2012 3:43 PM

The Rich People Who Don't Know How Tax Rates Work

How do you get to be as rich as the people in this New York Times story without ever figuring out how taxes work?

Kristina Collins, a chiropractor in McLean, Va., said she and her husband planned to closely monitor the business income from their joint practice to avoid crossing the income threshold for higher taxes outlined by President Obama on earnings above $200,000 for individuals and $250,000 for couples.
Ms. Collins said she felt torn by being near the cutoff line and disappointed that federal tax policy was providing a disincentive to keep expanding a business she founded in 1998.
“If we’re really close and it’s near the end-year, maybe we’ll just close down for a while and go on vacation,” she said.
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You see these idiots every time a tax hike becomes possible again. They have no apparent idea how marginal rates work. Right now, if her and her husband make $250,000, they pay at most a 33% tax on some of that income. If they made $251,000, they would have to pay the same rates for everything except that last $1000 -- that, they'd be taxed at 35%. If the rates increase across the board that top rate becomes 39.6%.

How do people still not understand that, and how does it color the debate over taxes? Barack Obama's managed to win two elections on a pledge to hike that top rate, and yet the people who don't understand it manage to get quoted every year.

David Weigel is a reporter for Bloomberg Politics

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