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How Both Sides Can Win on the Fiscal Cliff

Posted at 9 a.m. on Nov. 23, 2012

As negotiators work hard behind the scenes to craft a deal in the “fiscal cliff,” the New York Times looks at some of the proposals ”that would allow effective tax rates to rise for the wealthy without technically raising the top tax rate of 35 percent.”

“One possible change would tax the entire salary earned by those making more than a certain level — $400,000 or so — at the top rate of 35 percent rather than allowing them to pay lower rates before they reach the target, as is the standard formula… That idea could be combined with the reinstatement tax code provisions that once prevented the rich from taking personal exemptions or itemizing deductions.”

2comments
Budget & Taxes

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  • http://mediajunkie.com/ xian

    That seems ridiculous. We already have a nation of people who don’t understand marginal rates and here is a proposal that would set up an actual situation where earning an additional dollar would subject one’s entire income to a higher rate? Absurd.

    • rhodent

      Agreed; this is absurd. I did a little calculating, and found that that extra dollar would increase your total tax bill by $15,472,33. Or to put it another way, you could say that the marginal tax rate from $250,000 to $250,001 was over 1.5 million percent (to be precise: 1,547,233%). Under this system, a person making $250,000.00 a year would have to get a raise of $31,495.40 per year (i.e., just under a 12.6% raise) for their net income after taxes to increase one cent. I understand we need creative solutions here, but creative and stupid isn’t an improvement, and that’s what this is.

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