Saturday, January 5, 2013

Middle Tax Riddle

Once again a tax law has added more complexity to the Middle Class tax.  As the details emerge, the wage earners will only discover the details first when they compare their paycheck in 2012 to 2013 and finally when they submit their 2013 1040 to the IRS.

This tax law claiming to not increase taxes on 99% of the populace, is false advertising (more political spin).  Ignoring the expiration of the temporary stimulus of 2% payroll tax holiday, the phase out of exemptions and cap on deductions at certain income levels, the press (and politicians) focused on the marginal rate brackets to make their case of no tax increase on the middle class.

Defining the middle class is a statistical and demographic challenge in itself.  Attempting to use one measure (Adjusted Gross Income) to define the middle class ignores family size, number of income earners, cost of living locations, pre AGI deductions, age and upward income growth potential, work autonomy and stability, parental background and responsibility, marital status, assets, liabilities and net worth and the list goes on and on.

Regardless - progressive taxes require definition of brackets and rates.  So let's review (and name) the new brackets:

Tax BracketSingleMarried Filing JointlyHead of Household
10% Bracket$0 – $8,950$0 – $17,900$0 – $12,900
15% Bracket$8,950 – $36,250$17,900 – $72,500$12,750 – $48,600
25% Bracket$36,250 – $87,850$72,500 – $146,400$48,600 – $125,450
28% Bracket$87,850 – $183,250$146,400 – $223,050$125,450 – $203,150
33% Bracket$183,250 – $400,000$223,050 – $450,000$203,150 – $400,000
39.6% Bracket$400,000+$450,000+$400,000+

10% - Lower Class
15% - Upper Lower Class
25% - Lower Middle Class
28% - Upper Middle Class  (note - these two classes are the argument)
33% - Lower Upper Class   (note - these two classes are the argument)
39.6% - Upper Class

The rules are now in place.  The classes are defined.  Let the games begin.

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