hi Mike,
 

I have talked to a lot of people and I was surprised at how many actually thought it would be free.


My kids are not near the 250,000 that he said would be taxed in the beginning and their taxes went up from 23% to 31% this year. I'm sure it's not over with yet for these working people.

Ada

Ada -

I assume the figures you speak of reflect your kids' average tax rate: total income tax as a portion of total Adjusted Gross Income (AGI). The reason I ask is that it's customary to speak in terms of marginal income tax rates, increasing as your AGI fills up particular "brackets" (think of them as buckets) along the way.

For example, in 2009, the U.S. imarginal income tax rates, by bracket, for a married couple filing jointly, were as follows:

10%: $0 – $16,700
15%: $16,701 – $67,900
25%: $67,901 – $137,050
28% $137,051 – $208,850
33% $208,851 – $372,950
35% $372,951+

Whereas in 2008 the same marginal rates were:

10% $0 – $16,050
15% $16,051 – $65,100
25% $65,101 – $131,450
28% $131,451 – $200,300
33% $200,301 – $357,700
35% $357,701+

So basically, while the marginal rates have remained unchanged, between the two years, the "brackets" widened from 2008 to 2009. And for 2010 they are almost unchanged from 2009. On account of which the maginal tax rate for - say - the $135,000th dollar a married couple filing jointly earned was 28% in 2008 and 25% in 2009. As such, all other thing being equal, average tax rates should have declined for many people from 2008 to 2009. Please see the Wikipedia article, Income tax in the United States, http://en.wikipedia.org/wiki/Income_..._and_tax_rates, from which this information was taken.

But we know that "all other things" rarely if ever are equal.

Based on my experience, a significant rise in the average level of one's income tax as a function of minor increases in total AGI, is most likely due to the pernicious effects of the Alternative Minimum Tax (AMT), first adopted in 1970 to catch wealthy people who paid little or no federal income taxes due to careful "tax planning," but never adjusted for inflation. As a result, with "bracket creep" not only is the government assured that the taxpayer is required to pay a minimum percentage of AGI in takes, but far more importantly, from the taxpayer's point of view, as their income rises while still maintaining a basic middle class standard of living in expensive regions of the country (NYC, SF/SJ, LA, etc.) they begin to loose basic deductions they have always taken for granted in the computation of their AGIs: including the disallowal of state and local taxes, the deduction for personal exemptions, the standard deduction, and the deduction for interest on home equity loans. Due to it's complexity, and not an accountant by training, I can only direct you to the corresponding Wikipedia article, Alternative Minimum Tax, http://en.wikipedia.org/wiki/Alternative_Minimum_Tax

And while tax scholars have been writing about the increasing inequity of the non-indexed AMT for years, no Congress, Republican or Democrat, has done anything about it: because the government needs the money, and it's easier to do nothing than to do the right thing, but then turn around and significantly raise marginal tax rates in order to make up for the lost revenue. (Imagine the hue and cry!)

So, without knowing anything more, if I were to look for a "culprit" in your kids' rising taxes, I would start with the AMT.

Mike

correcting my mistake from Mon: understated scope of subsities for health ins.
 

In a post here on Monday (No. 27) I understated, by roughly a factor of three, the income levels at which some subsidies would generally be available for the purchase of heath insurance, when I said:

The bill(s) offer significant low income subsidies to purchase "real insurance" that is much better than Medicaid. I believe the cut off line is 125% of the federal poverty line, but it may be higher in sime circumstances. That said, it's still not completely free, but it's going to be significantly more affordable.

Apparently I misread the raw language of the proposed amendments to the now enacted Senate Bill and may have been looking at the the highest level of available subsities for the purchase of health insurance on the new exchanges. (Not sure.) In any event, an online article in the New York Times, dated March 23, 2010, "In Health Bill, Obama Attacks Wealth Inequality," put me on notice of the error:

The benefits, meanwhile, flow mostly to households making less than four times the poverty level — $88,200 for a family of four people. Those without insurance in this group will become eligible to receive subsidies or to join Medicaid. (Many of the poor are already covered by Medicaid.) Insurance costs are also likely to drop for higher-income workers at small companies. [Emphasis added.]

http://www.nytimes.com/2010/03/24/bu...a/ESanA7FxzNGw

It's a good article and I recommend it to anyone with an interest in the subject. Apologies for understating the level of subsidies the first time. The correct figures just serve to emphasize the importance of the surcharge on those significantly better off. And the New York Times is right, this is good old fashioned (Liberal/Progressive) income redistribution, like it or not.

Mike