Tuesday, January 22, 2013

An American Personal Tax Oddity

A brief article on the Tax Policy Center website by Howard Gleckman looks at one of the oddities of the fiscal cliff deal, the creation of a very tiny tax bracket.

The passing of the American Taxpayer Relief Act (ATRA) of 2012 which made permanent most of the tax cuts from the Bush-era and avoided the national cliff dive, created a teensy little tax bracket for single Americans who earn between $398,350 and $400,000, a bracket that spans a massive taxable income range totalling $1650 as shown on this chart:

Single Americans who fall in this tiny bracket will pay a marginal tax rate of 35 percent; those making under the $398,350 income level will pay a marginal tax rate of only 33 percent and those making over the $400,000 level will see their marginal tax rate jump to 39.6 percent.  By way of comparison, the 35 percent bracket for married couples filing jointly covers a range of incomes from $398,350 to $450,000 and for the head of the household, the same 35 percent bracket covers a range of incomes from $398,350 to $425,000.  For singles, before the passing of ATRA 2012, those with taxable incomes over $398,350 in 2012 had a marginal tax rate of 35 percent that would have jumped to 39.6 percent had the Bush-era tax cuts expired.

How many Americans will this change affect?  The Tax Policy Center estimates that it will impact less than 500 taxpayers or less than 0.05 percent of all American taxpayers.

If Congress had started the 39.6 percent tax bracket for single earners at $400,000 instead of $398,350, those 500 odd Americans affected would have seen their tax bills jump by a whopping $75.90 or a total of less than $38,000 for all of them combined.   Just think of what Washington could have done with the extra money!

As the author points out, it was in the 1970s when tax brackets were this narrow as shown on this screen capture:

Apparently, the good old days are back for the 500 single Americans earning between $398,350 and $400,000.

1 comment:

  1. Actually, this narrow bracket affects far more people than the 500 or so who land with their marginal rate in it. For every taxpayer whose income is above $400,000, or, in other words, every American in the new 39.6% bracket, their tax burden is lower by that $75.90 than it would be had the bracket started at $398,350 rather than $400,000.

    If this roughly equates to the "top 1%," that would be what, at least 2 million people?