On 60 Minutes last week, Alexandria Ocasio-Cortez talked about the Green New Deal with Anderson Cooper. As part of paying for it, she proposed a top marginal tax bracket of 70 percent at the $10 million mark. This opened up a fantastic opportunity to talk about what our country used to look like, and how it looks now. We used to have a top marginal tax bracket of over 90 percent under the Kennedy and Eisenhower administrations.
What I found though was that by and large, across the political spectrum, people misunderstand how marginal income tax brackets work. You can tell when someone doesn’t understand when they make a comment like this:
The commenter above believes a top marginal tax bracket of $10 million means that anyone making more than $10 million per year pays 70 percent of that income in tax—on all of their income.
The reason it’s important to explain how marginal income tax brackets really work is that the above perception seems immoral to people. It seems unfair. How marginal income tax brackets really work seems much fairer.
This said, here’s a quick primer on how to explain marginal income tax brackets.
I used to not understand how marginal income tax brackets worked
This isn’t something that’s limited to conservatives. I’ve found that across the board a lot of people don’t understand how marginal income tax brackets work.
I say this because we can have a tendency to fit this into the “conservatives are stupid” school of thought. If you start from this place, you’ve lost the battle before you’ve begun.
What I will say is that corporate America understands that people by and large don’t get this. So you’ll see lots of conservative pundits lying to people about how it works. This was one of the more egregious examples:
No one thinks this is scandalous. Dance away (was actually pretty good).
What is scandalous is increasing income taxes to 70%. It’s wholly unethical for anyone to work a majority of the year just to give their money to the government.
Dancing’s great, but ideas matter more. https://t.co/8RIShEJjAL
— Dan Crenshaw (@DanCrenshawTX) January 4, 2019
The first example I saw someone post was from Americans for Tax Reform.
Keep the focus on the propaganda/media, rather than the person making the mistake
Odds are that the person who doesn’t understand simply doesn’t understand. The media pushing this? That’s a different story.
What I would say, for example, is something like:
Americans for Tax Reform is misleading you. That’s not how marginal tax rates work. I used to not understand this until someone showed me. It’s confusing, but basically you’re only taxed at 70 percent on what you make over $10 million.
What this does is take away the left vs. right angle. You want to be in the position of just trying to help someone understand.
How you set this up is actually more important than the explanation. The position you don’t want to be in is, “Why don’t you understand marginal tax rates … (you dumbass)?”
As an FYI, you can also use this tactic in plenty of other situations.
Explaining marginal tax rates
Let’s look at a simple example. First, we’ll say we’ll add a top tier marginal tax rate of 70 percent starting at $10 million per year for single filers.
Then, let’s say you’re single and make $11 million per year. Here’s how the marginal tax rates would work:
|Marginal Tax Rate||SINGLE TAXABLE INCOME||Taxes Paid on $11 million/Year|
The overall effective tax rate of someone making $11 million/year is 39.69 percent—not 70 percent.
Vox also has a really good explanation of this using pictures.
Emphasize that up until $10 million per year, they’d be taxed at the lower rates paid by everyone else. The marginal rate of 70 percent would only be on everything over $10 million/year.
Marginal tax rates are much fairer and more moral than how many people think income taxation works. For this reason, it’s worth helping folks understand how marginal tax rates work.
David Akadjian is the author of The Little Book of Revolution: A Distributive Strategy for Democracy (print or ebook).