The Laffer Curve

[ebacon]

You guys know the Laffer curve. It is the one that shows that as taxes go up the incentive to earn goes down. It's not rocket science. In fact it's the point of having a progressive income tax structure.

Question for the Republicans on the board. Do you understand how a progressive income tax structure works? For example suppose the following structure:

Income--Tax rate

Up to 20,000 -- 10%
20,001-50,000 -- 20%
50,001-100,000 -- 30%
100,000-1,000,000 -- 40%
Over 1,000,0001 -- 50%

Suppose a person has $20,000 of taxable income. How much tax does he pay and what is his effective tax rate?

Suppose a person has $20,001 of taxable income. How much tax does he pay and what is his effective tax rate?

Suppose a person has $125,000 of taxable income. How much tax does he pay and what is his effective tax rate?

[finnbow]

Conservatives don't do math. It's too much like science.

[ebacon]

Originally Posted by finnbow

Conservatives don't do math. It's too much like science.

Careful. I consider myself conservative. The difference between myself and neocons is that I only go back to about 1789 America. The new class goes all the way back to King George III of 1776.

[d-ray657]

The first one $2000. or 10%

The second one $2,000.20 or 10.0005% (with rounding)

The third: $2,000 + $6,000 + $15,000 + $10,000 = $33,000. That's $26.4%, or a considerably higher rate than the GOP candidates.

That is, assuming I got my pluses and minuses and guzintas right.

Actually, one can't really answer the question concerning the effective tax rate without knowing what is subtracted from total income to get to the taxable income. Also, I assume that this doesn't include the 4.2% (temporarily reduced from 6.2%) FICA tax that wage earners pay on the first $100K or so of income. Unlike the other incidences of determining taxable income, this is paid from dollar 1.

Oh, and then we're talking about taxable income, are we talking about passive income or earned income. Then we're changing the effective rate again. Of course, that's how Mitt paid 13%.

Regards,

D-Ray

[ebacon]

Originally Posted by d-ray657

The first one $2000. or 10%

The second one $2,000.20 or 10.0005% (with rounding)

The third: $2,000 + $6,000 + $15,000 + $10,000 = $33,000. That's $26.4%, or a considerably higher rate than the GOP candidates.

That is, assuming I got my pluses and minuses and guzintas right.

Actually, one can't really answer the question concerning the effective tax rate without knowing what is subtracted from total income to get to the taxable income. Also, I assume that this doesn't include the 4.2% (temporarily reduced from 6.2%) FICA tax that wage earners pay on the first $100K or so of income. Unlike the other incidences of determining taxable income, this is paid from dollar 1.

Oh, and then we're talking about taxable income, are we talking about passive income or earned income. Then we're changing the effective rate again. Of course, that's how Mitt paid 13%.

Regards,

D-Ray

D-ray,

Are you a Republican?

[whell]

Originally Posted by ebacon

You guys know the Laffer curve. It is the one that shows that as taxes go up the incentive to earn goes down. It's not rocket science. In fact it's the point of having a progressive income tax structure.

Question for the Republicans on the board. Do you understand how a progressive income tax structure works? For example suppose the following structure:

Income--Tax rate

Up to 20,000 -- 10%
20,001-50,000 -- 20%
50,001-100,000 -- 30%
100,000-1,000,000 -- 40%
Over 1,000,0001 -- 50%

Suppose a person has $20,000 of taxable income. How much tax does he pay and what is his effective tax rate?

Suppose a person has $20,001 of taxable income. How much tax does he pay and what is his effective tax rate?

Suppose a person has $125,000 of taxable income. How much tax does he pay and what is his effective tax rate?

So we don't get into a gotcha game, please define "effective tax rate" as you use it here. It is a phrase that means different things to different people, including the CBO. They've used it differently on a couple of occasions.

[whell]

One example of a CBO definition of "effective tax rate":

"Effective tax rates are calculated by dividing taxes by comprehensive household income," where comprehensive household income "equals pretax cash income plus income from other sources. Pretax cash income is the sum of wages, salaries, self-employment income, rents, taxable and nontaxable interest, dividends, realized capital gains, cash transfer payments, and retirement benefits plus taxes paid by businesses (corporate income taxes and the employer's share of Social Security, Medicare, and federal unemployment insurance payroll taxes) and employer contributions to 401(k) retirement plans. Other sources of income include all in-kind benefits (Medicare, Medicaid, employer-paid health insurance premiums, food stamps, school lunches and breakfasts, housing assistance, and energy assistance). Households with negative income are excluded from the lowest income category but are included in totals." This CBO definition includes in income many items, such as employer share of Social Security tax, not considered income for most purposes. "

[ebacon]

Originally Posted by whell

So we don't get into a gotcha game, please define "effective tax rate" as you use it here.

The same way d-ray did -- and the only way to calculate it given the way the problem is stated.

I don't play gotcha. That's a game the f*cksticks on teevee and radidio play.

[d-ray657]

Originally Posted by ebacon

D-ray,

Are you a Republican?

Oops. That's why you have to read the whole question before you answer. In my defense, it's been a year or two since I took a test.

Actually I was registered as a republican for a few months in 1980. I went to the caucuses to vote for John Anderson and try to stop Reagan.

Regards,

D-Ray

[Boreas]

Originally Posted by ebacon

D-ray,

Are you a Republican?

Originally Posted by d-ray657

Oops. That's why you have to read the whole question before you answer. In my defense, it's been a year or two since I took a test.

Actually I was registered as a republican for a few months in 1980. I went to the caucuses to vote for John Anderson and try to stop Reagan.

Regards,

D-Ray

To see whether you're still a Republican?

John