What You Need to Know About Marginal Tax Rates
You may have heard that newly minted Congresswoman Alexandria Ocasio-Cortez said in an interview with 60 Minutes over the weekend that there is a precedent for wealthy Americans who are at “peak peaks” – in this case, earning more than $ 10 million, – to pay the limit. tax. rate ” up to 60 or 70 percent “.
“This does not mean that the entire $ 10 million is taxed at a very high rate. But that means you have to do more as you climb that ladder, ”she said.
Conservatives argue that such taxation is unfair to wealthy people. And while the Minority Whip seems to know better, Rep. Steve Scalize appears to have indicated that such a rate would mean the government would “take” 70 percent of the high (to clarify: astronomically high) income. But that’s not how income tax works in the United States. This is because our income is taxed at “marginal” rates, as the congresswoman hinted in her interview.
What does it mean? This means that different levels of income are taxed at progressively higher rates for the same person. What you probably call your tax category is not the effective rate you pay on all of your income. This is the rate you pay at the highest income level, the money you earn in excess of the tax tier thresholds. For example, take the 2019 tax brackets for individuals (you are taxed on each rate if your income exceeds the amount listed next to it):
- 10 percent: $ 0
- 12 percent: $ 9,700
- 22 percent: $ 39,475
- 24 percent: $ 84,200
- 32 percent: $ 160,725
- 35 percent: $ 204,100
- 37 percent: $ 510,300
For example, if you earn $ 161,000 this year, you will not be taxed at 32 percent of the total. You will be taxed in each of the four preceding categories as your income rises, and you will be taxed 32 percent on federal earnings over $ 160,725:
- 10 percent off the first $ 9,700
- 12 percent of the amount from 9 701 to 39 475 US dollars
- 22 percent of the amount between $ 39,476 and $ 84,200
- 24 percent of the amount between $ 84,201 and $ 160,725
- 32 percent of the amount over $ 160,725
And so on if you earn more than this example. So Ocasio-Cortez proposed a different tax rate of 70 percent on income over $ 10 million, rather than 70 percent on all income if you make $ 10 million or more. And following the example of Ocasio-Cortez, who makes more than $ 10 million a year? According to a 2016 report from the Economic Policy Institute , the richest one percent of U.S. households bring in at least $ 389,436 a year, although the average is close to $ 1.15 million. So we’re talking about a percentage of one percent.
In 2019, the maximum marginal tax rate is 37 percent. Historically, this is a fairly low figure. You can go back to 1981 and find a 70 percent cap rate, and that’s on income over $ 108,300 for an individual, according to the tax fund . Before that, for some time, those who were at the “top” were taxed more than 90 percent. Ocasio-Cortez’s statement (this is not a political proposal at the moment) is in line with the progressive economic proposals.
In short, the federal government is not going to take 70 percent of the typical wealthy’s money.