It never ceases to amaze me just how little some people actually understand about taxes, given how het up we get about taxes. We saw this before, when Obama unveiled his tax plan. Now, Mitch Albom gets into the act, incorrectly calling the increase in taxes on the wealthiest Americans a 5.4% increase:
Someone making $1,000,000 per year wouldn’t pay $54,000 more in taxes under this bill. They’d pay $9,000.
That’s because the 5.4% surcharge would only apply to someone’s income over $1,000,000. Your tax bill wouldn’t suddenly go up by $54,000 if one year you made $1,000,000 instead of $999,999.
Here’s how the proposed surcharge would actually work. There would be:
• an additional 1% tax on income between $350,000 and $500,000. Thus, if someone makes $500,000 per year, they would pay an extra 1% of $150,000, or $1,500.
• an additional 1.5% tax on income between $500,000 and $1,000,000. Thus, if someone makes $1,000,000 per year, they would pay an extra 1.5% of $500,000, or $7,500.
That’s $9,000 more in taxes ($1,500 + $7,500), or 0.9%.
(Now, it is true that someone making $10 million per year would pay an additional $495,000. That would consist of the extra $9,000 on the first million plus 5.4% ($486,000) on the next $9 million.)
(I think the decamillionaire will get by somehow). It’s remarkable that people think that increases in the top tax bracket are ‘retroactive’ towards lower brackets. I don’t understand the cognitive process here. And it seems to happen quite often.
How does Albom, who doesn’t seem like a particularly stupid guy, come to this conclusion?