Tuesday, February 17, 2009

An Increase in Marginal Tax Rates

From David Henderson:
As I have been saying for the last month or so, when I saw the details of the tax rebate (and I'm sure other marginalists have been saying so too), under the "stimulus" bill that President Obama will sign today, marginal tax rates for some of the most-productive people in the world will rise. That's what happens when the government gives a rebate or a tax credit and then phases it out above some income level. Marginal tax rates rise for the range of income in which the phaseout occurs....

For single taxpayers (the WSJ says "workers" but I'm not sure you need to work to qualify) , the rebate phases out after $75,000 of income by $20 for every additional $1,000 of income. The tax credit for singles is $400. So for singles in the income range from $75K to $95K, marginal tax rates in income will be two percentage points higher. For married taxpayers, the tax credit is $800; it phases out after $150,000 of income by the same $20 per $1,000 of income. So for married taxpayers with income between $150,000 and $190,000, marginal tax rates will be two percentage points higher.