Saturday, December 22, 2012

A LITTLE INSIDE BASEBALL

I am going to take just a moment to explain something that every single public political commentator knows, and that millions of non-bloviating Americans know, but that somehow never ever makes it into the discussions now going on about tax rates.  As everyone knows who has ever labored through Form 1040 of the Federal Income Tax filing system, you are taxed not on the amount of money you earn from all sources during the year, which is called your Gross Taxable Income [although even this is actually a misnomer for reasons I shall not bore you with], but rather on a quite different amount of money called your Net Taxable Income.  You arrive at your Net Taxable Income by taking the sum of all your sources of income [this is on page one of Form 1040], and then on page 2 subtracting from that sum all manner of amounts of money that are called either deductions or exemptions.  You get to deduct all or most of the interest you pay on a home mortgage, all or most of the money you pay in state and local taxes, all or most of the money you give to charitable organizations, all the money over a fraction of your Gross Taxable Income that you pay for medical insurance, services, and equipment, along with lot of other amounts of money that some people at least can claim as deductions.  In addition, you get to claim a sizable amount of money for yourself and your spouse [if you are married and filing a joint return] and any dependent children you may have.  This last is called an Exemption.  When all is said and done, many people, especially people who used to be called rich when I was young [but are now called middle-class], end up deducting tens or scores of thousands of dollars from their Gross Taxable Income before they arrive at the Net Taxable Income on which their tax is actually calculated. 

Now, all the talk about raising the rates on "people making more than $250,000 a year" conceals the fact that what is actually being contemplated is raising the top rate paid by people whose Net Taxable Income is $250,000 or more, and those are people who, in all likelihood, have Gross Taxable Incomes well in excess of $300,000.  Furthermore, the higher rate being argued over will of course be paid only on that portion of their Net Taxable Income that is over $250,000.  All of their Net Taxable Income below $250,000 will be taxed at the lower rates that came into effect when George Bush was President.

Can we please stop talking about this as a debate about "middle class tax rates?"

2 comments:

  1. The closing discussion about marginal rates is of course correct. But the AMT significantly complicates matters with respect to deductions, credits, and gross income.

    ReplyDelete
  2. I know, I know, but there is a limit to how much inside baseball even baseball fans will stand for!

    ReplyDelete