How Taxes Work

Jonathan Chait makes a point that should be included in every article about tax rates, because it is so frequently misunderstood: “The main problem with the article is that it presupposes that individuals making $200,000, or couples earning $250,000, will pay higher taxes. They won’t. The tax hike only applies to income over that threshold. When you go from $250,000 to $250,001, you only pay a higher tax rate on that one extra dollar. Your taxes will go up by a few cents. If you earn $300,000, you will pay a slightly higher tax rate on the last $50,000 of your income — less than a couple thousand dollars. Even people making half a million dollars a year won’t be ‘taxed at rates similar to those who make $5 million,’ because only half their income will be taxes at the top rate.”