[educationonlines]

By the way--there was NEVER a budget suplus. Simply democratic spin:

Time and time again, anyone reading the mainstream news or reading articles on the Internet will read the claim that President Clinton not only balanced the budget, but had a surplus. This is then used as an argument to further highlight the fiscal irresponsibility of the federal government under the Bush administration.

The claim is generally made that Clinton had a surplus of $69 billion in FY1998, $123 billion in FY1999 and $230 billion in FY2000 . In that same link, Clinton claimed that the national debt had been reduced by $360 billion in the last three years, presumably FY1998, FY1999, and FY2000--though, interestingly, $360 billion is not the sum of the alleged surpluses of the three years in question ($69B + $123B + $230B = $422B, not $360B).

While not defending the increase of the federal debt under President Bush, it's curious to see Clinton's record promoted as having generated a surplus. It never happened. There was never a surplus and the facts support that position. In fact, far from a $360 billion reduction in the national debt in FY1998-FY2000, there was an increase of $281 billion.

Verifying this is as simple as accessing the U.S. Treasury (see note about this link below) website where the national debt is updated daily and a history of the debt since January 1993 can be obtained. Considering the government's fiscal year ends on the last day of September each year, and considering Clinton's budget proposal in 1993 took effect in October 1993 and concluded September 1994 (FY1994), here's the national debt at the end of each year of Clinton Budgets:


Fiscal
Year Year
Ending National Debt Deficit
FY1993 09/30/1993 $4.411488 trillion
FY1994 09/30/1994 $4.692749 trillion $281.26 billion
FY1995 09/29/1995 $4.973982 trillion $281.23 billion
FY1996 09/30/1996 $5.224810 trillion $250.83 billion
FY1997 09/30/1997 $5.413146 trillion $188.34 billion
FY1998 09/30/1998 $5.526193 trillion $113.05 billion
FY1999 09/30/1999 $5.656270 trillion $130.08 billion
FY2000 09/29/2000 $5.674178 trillion $17.91 billion
FY2001 09/28/2001 $5.807463 trillion $133.29 billion



As can clearly be seen, in no year did the national debt go down, nor did Clinton leave President Bush with a surplus that Bush subsequently turned into a deficit. Yes, the deficit was almost eliminated in FY2000 (ending in September 2000 with a deficit of "only" $17.9 billion), but it never reached zero--let alone a positive surplus number. And Clinton's last budget proposal for FY2001, which ended in September 2001, generated a $133.29 billion deficit. The growing deficits started in the year of the last Clinton budget, not in the first year of the Bush administration.

Keep in mind that President Bush took office in January 2001 and his first budget took effect October 1, 2001 for the year ending September 30, 2002 (FY2002). So the $133.29 billion deficit in the year ending September 2001 was Clinton's. Granted, Bush supported a tax refund where taxpayers received checks in 2001. However, the total amount refunded to taxpayers was only $38 billion . So even if we assume that $38 billion of the FY2001 deficit was due to Bush's tax refunds which were not part of Clinton's last budget, that still means that Clinton's last budget produced a deficit of 133.29 - 38 = $95.29 billion.

Clinton clearly did not achieve a surplus and he didn't leave President Bush with a surplus.

So why do they say he had a surplus?

As is usually the case in claims such as this, it has to do with Washington doublespeak and political smoke and mirrors.

Understanding what happened requires understanding two concepts of what makes up the national debt. The national debt is made up of public debt and intragovernmental holdings. The public debt is debt held by the public, normally including things such as treasury bills, savings bonds, and other instruments the public can purchase from the government. Intragovernmental holdings, on the other hand, is when the government borrows money from itself--mostly borrowing money from social security.

Looking at the makeup of the national debt and the claimed surpluses for the last 4 Clinton fiscal years, we have the following table:


Notice that while the public debt went down in each of those four years, the intragovernmental holdings went up each year by a far greater amount--and, in turn, the total national debt (which is public debt + intragovernmental holdings) went up. Therein lies the discrepancy.

When it is claimed that Clinton paid down the national debt, that is patently false--as can be seen, the national debt went up every single year. What Clinton did do was pay down the public debt--notice that the claimed surplus is relatively close to the decrease in the public debt for those years. But he paid down the public debt by borrowing far more money in the form of intragovernmental holdings (mostly Social Security).

Go to the U.S. Treasury website: http://www.treasury.gov/

Scroll to the "Bureaus" section and click on "Bureau of the Public Debt" which takes you to http://www.publicdebt.treas.gov/

Scroll down to the section "The U.S. Public Debt" and click on "See the U.S. Public Debt to the Penny."

This takes you to the link I originally provided: http://www.treasurydirect.gov/NP/BPD...application=np

I am providing a direct link to the U.S. Treasury, Bureau of the Public Debt, National Debt to the Penny website. This is the official website that the U.S. government provides which allows the public to track the debt.

[BuyCheapest]

The top 1% of paid 38% of all tax revenue in 2008 according to the IRS. Bottom 40%--nothing. How much more do they need to be taxed. It is easy to say "tax the rich" but they are already paying the majority of taxes that are collected. We should tax them the same...the so called poor pay NOTHING.

The bottom 40% pay taxes but that is besides the point. The Republican platform has been built on the idea of transfering the cost of the national debt away from those most able to help and on the poorest Americans who aren't. They would rather we cut more funding for unemployment insurance, medicare, social security, food stamps and WIC programs than raise the taxes on the richest Americans one dime.

[Speareerfug]

By the way--there was NEVER a budget suplus. Simply democratic spin...

[rest of post removed for sake of space]

Yes, he did borrow from Social Security, but he also increased taxes -

But it does disprove a popular Conservative myth - that the President actually plays a major role in the economy - he doesn't. The #1 reason for a surplus in the Clinton years was the "dot com bubble" - which would have happened regardless of a Democrat or a Republican being in office. But pretending the president is like God, controlling recessions and booms with his magic purple crayon is convenient to Republican agenda - pretend Bush created an economic boom, and Obama villainously caused a recession.

[Hammaduersnes]

Now I am obviously not rich but fair is fair:

Looks like the rich pay more than their fair share of taxes after all.

Scott Hodge of the Tax Policy Center Blog wrote today about newly released IRS statistics that show,

[T]he top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government. This is the highest percentage in modern history. By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the 1986 tax reform act.

Remarkably, the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined. In 2007, the bottom 95 percent paid 39.4 percent of the income tax burden. This is down from the 58 percent of the total income tax burden they paid twenty years ago.

To put this in perspective, the top 1 percent is comprised of just 1.4 million taxpayers and they pay a larger share of the income tax burden now than the bottom 134 million taxpayers combined. (Emphasis Added)

How dare those greedy rich bastards oppose tax increases!

[plantBanceper]

Along the same lines as a poster above ... the rich may seem like an easy target because they have so much incone, I agree with going after the 47% of U.S. households that pay NO TAX whatsoever. Lets look at the statistic that in 2009, 47% of households in the U.S. paid no taxes at all and there are approximately 120 million households in the U.S as of the 2010 census. Lets also say that the average income of the 56.4 million non-tax paying households is $25000 and not the $46,000 as stated in the census ... yes I'm being conservative. The president could instate that every single household in the U.S. pay at least something toward taxes ... let's again say 1% for the case of these 56.4 million households. Given my above assumptions, that would generate $14.1 billion in revenue. I would say this would solve a lot of problems.

I know this site is not CNN and I don't think there are many bleeding hearts here that would say "How dare I assign a tax to the poor" ... I say that I think at $25K a year, they could forego the McDonalds once a week and pay the $4.81 out of their weekly paycheck to assist our great nation and not be part of the problem.

[Habalinnyf]

Nothing like a little class warfare to try to get you dismal approval ratings up before you go for reelection. I mean those evil rich only make it possible for people to have jobs and all, guess when I get out, I should start looking into being hired by a guy on street that has nothing but a welfare check.

Agreed. Both CNN and MSNBC ran stories last night claiming that O'riley, limbaugh etc were pandering to the rich with their claims of this being nothing more than class warfare.. BUT i mean come-on, what else do you call it when it affects LESS THAN 2% of the population?

I love Conservative logic. Cut welfare, cut social security, cut medicaid, cut medicare... even cut the military, and its all just "making necessary sacrifices". All these cuts affect the blue collar and middle class.

But good God, anyone dares to try and make the rich pay more, and all kinds of holy outrage from the religious right breaks loose.

Looking at the numbers both Fox and CNN showed yesterday (that 0.2% of the tax returns showed someone in the millionaire category, but they make up for 23%+ of the total income tax monies GATHERED), along with the fact the lower 48% cause of EIC, Child tax credit and all the others effectively don't evne PAY any taxes, to me asking the highest 1% to YET again pay more IS wrong. Obama keeps going on about everyone paying their "Fair share"..
BUT i ask, how is it fair, that many of the lower class DON'T Even pay any income tax, but get a tax refund (cause of those credits), while someone who busts their butt and earns 1+ mil, pays (with corp income and reg income put together) over 50% of their taxes..

Well actually that was sarcasm -- but in all seriousness, what are we going to cut? The vast, vast majority of government spending goes to Social Security, Medicare/aid, and the military. Who are we going to cut? The elderly, the poor, or the troops holding back the terrorist hordes?

And to me that is a BIG chunk of the problem. Too many people have gotten to where they depend on the govt to live, to where we are turning away from a free market, to practically socialism. I work with a lot of people who always talk about hitting it big and becoming a milionare, but most said they would rather just top out at 900k to avoid this crap.

While this is true, raising taxes isn't going to magically fix the deficit - why NOT increase revenue? At least with wracking up taxes within reason, we're not damaging ourselves, as making cuts WILL disrupt the economy and make the recession worse.

Will it? Or is that just the CNN/liberal spin on things? Just increasing revenue won't do jack to stop the recession, unless we also make a massive cut on what we spend. I would rather stop foreign aid before i touch the mil/medicare/medicade.. BUT i would also like to see cuts made to those welfare programs.

My BIG question for Conservatives, however, is this: Why are we now all of a sudden worried about the national debt? Don't you think it would have made more sense to cut back the debt back in the day when we had a surplus? Nope - apparently it was better to give it all away in tax cuts for the rich and defense contracts. No point in crying over spilt milk I suppose.

Now this i will agree with you on. BUT That is part of the big issue with ALL of govt.. not just the conservatives.

Now I am obviously not rich but fair is fair:

Looks like the rich pay more than their fair share of taxes after all.

Scott Hodge of the Tax Policy Center Blog wrote today about newly released IRS statistics that show,

[T]he top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government. This is the highest percentage in modern history. By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the 1986 tax reform act.

Remarkably, the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined. In 2007, the bottom 95 percent paid 39.4 percent of the income tax burden. This is down from the 58 percent of the total income tax burden they paid twenty years ago.

To put this in perspective, the top 1 percent is comprised of just 1.4 million taxpayers and they pay a larger share of the income tax burden now than the bottom 134 million taxpayers combined. (Emphasis Added)

How dare those greedy rich bastards oppose tax increases!

Thanks for posting stuff that backs up what i was saying..

[BgpOoGI2]

Now I am obviously not rich but fair is fair:

Looks like the rich pay more than their fair share of taxes after all.

Scott Hodge of the Tax Policy Center Blog wrote today about newly released IRS statistics that show,

[T]he top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government. This is the highest percentage in modern history. By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the 1986 tax reform act.

When you consider that the top 1% control 40% of the wealth in the country, it doesn't seem so unfair.

I think most people don't realize just how weathly we are talking about when talking about the top 1%.

As Chris Rock put it... "Shaquille O'Neal is rich; the guy who signs his paycheck is WEALTHY"

Remarkably, the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined. In 2007, the bottom 95 percent paid 39.4 percent of the income tax burden. This is down from the 58 percent of the total income tax burden they paid twenty years ago.

To put this in perspective, the top 1 percent is comprised of just 1.4 million taxpayers and they pay a larger share of the income tax burden now than the bottom 134 million taxpayers combined. (Emphasis Added) Isn't it also remarkable that they control so much of the wealth?

How dare those greedy rich bastards oppose tax increases! To whom much is given...

[thierabess]

"To whom much is given" what???

[viawbambutt]

I work with a lot of people who always talk about hitting it big and becoming a milionare, but most said they would rather just top out at 900k to avoid this crap.

They're idiots then, because they clearly don't understand how our taxes work. You do not suddenly make less money at 1 million dollars than you would at 999,999 dollars. We have a marginal tax system. When you hit the next successive tax bracket, you are taxed at the higher rate for only the income above that threshold, i.e. if the bracket was 70% for 1 million or above, you would pay 70% on any income above a million, not 70% of a million.

I am forever amused by this concept that folks that make considerable more money being taxed higher is unfair, as if it were fair that a CEO can make more money in a year than a single mother working two jobs trying to make ends meet in her entire lifetime. I wouldn't consider that fair in the slightest. Guess what? Life isn't fair. You make more money, you pay higher taxes. Deal with it.

[xLQLRcXh]

They're idiots then, because they clearly don't understand how our taxes work. You do not suddenly make less money at 1 million dollars than you would at 999,999 dollars. We have a marginal tax system. When you hit the next successive tax bracket, you are taxed at the higher rate for only the income above that threshold, i.e. if the bracket was 70% for 1 million or above, you would pay 70% on any income above a million, not 70% of a million.

I am forever amused by this concept that folks that make considerable more money being taxed higher is unfair, as if it were fair that a CEO can make more money in a year than a single mother working two jobs trying to make ends meet in her entire lifetime. I wouldn't consider that fair in the slightest. Guess what? Life isn't fair. You make more money, you pay higher taxes. Deal with it.

Good points. I was always baffled by this idea that high taxes were somehow an disincentive to earning money, as if someone would turn down a pay raise because they would have to pay slightly more taxes.

The rich benefit from society, no man is an island and no one because a millionaire on their own. They benefit from the educations provided to their workers by public schools, the infrastructure that allows them to transport their goods to market, a stable economic system fostered by regulations and market controls, and obviously from security provided by the police and the military. Those who have succeeded the most have not only the ability but the obligation to the society which enabled their success.

But today the extreme right wing of the republican party wants to convince people that the real villains are the poor and middle class who apparently pay nothing (as long as you don’t count withholdings, social security, medicare and sales taxes). But I ask, if we take more from those who are already struggling, what will be the result? How will our economy, which is centered on consumerism, recover if they have less and less to spend?

“Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history…Their number is negligible and they are stupid.” I wonder what radical leftist uttered this, oh wait it was Dwight Eisenhower! Oh how far the Republican party has fallen.

[TubOppomo]

The hilarious part about the complaint that half of the population doesn't pay income tax is that they're generally lower income workers, and the rest are lower middle class with children. It's not like they're rolling in cash. Tax an extra thousand bucks away from a millionaire and they'll be annoyed, but they still have hundreds of thousands of dollars to live a lavish lifestyle. Tax an extra thousand bucks away from a McDonald's worker and they're going to have to cut back on something... food, clothing, vehicle maintenance. Something will have to give.

It's not about what's fair. It's about what's practical.

[eI7iqNot]

The hilarious part about the complaint that half of the population doesn't pay income tax is that they're generally lower income workers, and the rest are lower middle class with children. It's not like they're rolling in cash. Tax an extra thousand bucks away from a millionaire and they'll be annoyed, but they still have hundreds of thousands of dollars to live a lavish lifestyle. Tax an extra thousand bucks away from a McDonald's worker and they're going to have to cut back on something... food, clothing, vehicle maintenance. Something will have to give.

It's not about what's fair. It's about what's practical.

Parn ... if you look at my comment above, the taxation of the 47% of U.S. households at 1% of my assumed $25K average household income (eventhough the latest census puts median income at $46K) would generate over $14B in tax revenues. The calculation would take less than $5 per household per week!!! Even at the extreme level of those making minimum wage, which I believe is $7.25, would result in being taxed $2.90 a week. Now, I'm not saying this applies to everyone, but if you have ever gone to any poorer areas (I regularly ride the DC Metro and make a few stops in some of these areas), it amazes me to see the majority of folks getting on wearing brand new clothes, sneakers, iPhones, iPods, jewelry, etc.

Everyone should pay taxes for something like local municipalities generate revenue through its residents in the form of property tax. If you are a resident of this nation, you owe taxes to cover the costs of running the country based on your income wheter it be from your job, unemployment, welfare benefits, etc.

[neerewed]

I actually would be OK with that. However, I am still adamant about those who are well off being taxed higher in a concerted effort to alleviate our debt issues. There's a whole slew of adjustments that need to be made, but none of them are good for folks trying to get re-elected.

[carreraboyracer]

"To whom much is given" what???

Much is required.

[Audi_z]

Yes, he did borrow from Social Security, but he also increased taxes -

But it does disprove a popular Conservative myth - that the President actually plays a major role in the economy - he doesn't. The #1 reason for a surplus in the Clinton years was the "dot com bubble" - which would have happened regardless of a Democrat or a Republican being in office. But pretending the president is like God, controlling recessions and booms with his magic purple crayon is convenient to Republican agenda - pretend Bush created an economic boom, and Obama villainously caused a recession.

Then all the Democratic mouthpieces (to include the President) who have been blaming Bush for the current economic crisis are equally wrong?

[njfeedd3w]

It is simple math not to be confused with statistical manipulation.

There is a graduated table of tax rates based on income level. Treat all income the same and stop shielding capital gains and we will then have a truly fair tax system. Of course in terms of dollar amounts, those that make more are paying more but in terms of fair share (a measure of percentage of income paid) then everyone is on an equal footing.

If it weren’t so then everyone would simply stop striving to be millionaires and billionaires. Buffet said it best when he said that predictions of people abandoning investments if their capital gains were not shielded is pure bunk. People who invest will still profit and therefore people who can invest will continue to do so.

The rest is pure political bullshyte…………from both sides of the aisle. The proposal by Obama will do little if anything substantial to solve the budget woes and is nothing more than a political rhetoric aimed at getting the Democratic base back on the Hope and Change Train. The cries of ‘Class Warfare’ are nothing more than diametrically opposed rhetoric aimed at dividing an already polarized voter population.

[Effopsytupt]

They're idiots then, because they clearly don't understand how our taxes work. You do not suddenly make less money at 1 million dollars than you would at 999,999 dollars. We have a marginal tax system. When you hit the next successive tax bracket, you are taxed at the higher rate for only the income above that threshold, i.e. if the bracket was 70% for 1 million or above, you would pay 70% on any income above a million, not 70% of a million.

I am forever amused by this concept that folks that make considerable more money being taxed higher is unfair, as if it were fair that a CEO can make more money in a year than a single mother working two jobs trying to make ends meet in her entire lifetime. I wouldn't consider that fair in the slightest. Guess what? Life isn't fair. You make more money, you pay higher taxes. Deal with it.

It amuses me somewhat as well.. BUT i see where they are coming from. From their (and somewhat mine) POV it seems the more successful you get the more you are punished for being that successful.

Good points. I was always baffled by this idea that high taxes were somehow an disincentive to earning money, as if someone would turn down a pay raise because they would have to pay slightly more taxes. I know 3 who when they retired, and got civilian jobs (well 2 were contractors) DID just that. Turned down a pay raise cause it would shift them up a tax bracket. and the higher taxes would eat up not just the raise, but (iirc) 200$ of their remaining pay as well.

[13spebampiliece]

It amuses me somewhat as well.. BUT i see where they are coming from. From their (and somewhat mine) POV it seems the more successful you get the more you are punished for being that successful.

I like how you reply to my post as if you understood the points presented about how the marginal tax system works, and then follow up with this:

I know 3 who when they retired, and got civilian jobs (well 2 were contractors) DID just that. Turned down a pay raise cause it would shift them up a tax bracket. and the higher taxes would eat up not just the raise, but (iirc) 200$ of their remaining pay as well. I mean, holy crap dude. Did you even read my post? Those three individuals are morons for turning down a pay raise out of some ridiculous belief that they would lose money by taking a pay raise. Apparently I need to break this down using actual math to make this concept clear.

Let's establish some tax brackets. Let's say for simplicity's sake, the country of Parnonia has five tax brackets as follows:

$0-15,000 : 0% tax
$15,001-$30,000 : 10% tax
$30,001-$45,000 : 20% tax
$45,001-$60,000 : 30% tax
$60,001+ : 40% tax

The land of Parnonia is filled with earners that make various amounts of income. Bob is making $60,000 a year before taxes, sitting pretty in the 30% tax bracket. Parnonia has a marginal tax system much like the United States! Bob however, is an ignorant, low-information voter who screams and moans about the evils of taxes and doesn't know how a marginal tax system works. He complains that he's paying 30% of his income in taxes, and grumbles further that if he makes a single dollar more, he'd have to pay 40% instead since it'd put him in the next tax bracket. Freaking socialists! Despite being offered a $5,000 raise at work, he rejects it out of a belief that he's going to lose money! After all, he did the math:

$60,000 - (0.30 x $60,000) = $60,000 - $18,000 = $42,000 after income taxes
$65,000 - (0.40 x $65,000) = $65,000 - $26,000 = $39,000 after income taxes

See! Taking the raise would put him in a higher tax bracket, and the $5,000 raise would mean he'd actually make $3,000 less instead!


.........


Except that's not how the tax system works at all. In a marginal tax system, you only pay taxes on the income within each respective bracket. Here's how the math would actually work:

What Bob Makes After Taxes @ $60,000/year
Bracket 1 with 0% tax : $15,000 - (0.00 x $15,000) = $15,000 - 0 = $15,000
Bracket 2 with 10% tax: $15,000 - (0.10 x $15,000) = $15,000 - $1,500 = $13,500
Bracket 3 with 20% tax: $15,000 - (0.20 x $15,000) = $15,000 - $3,000 = $12,000
Bracket 4 with 30% tax: $15,000 - (0.30 x $15,000) = $15,000 - $4,500 = $10,500
$15,000 + $13,500 + $12,000 + $10,500 = $51,000 after income taxes

What Bob Makes After Taxes @ $65,000/year
Bracket 1 with 0% tax : $15,000 - (0.00 x $15,000) = $15,000 - 0 = $15,000
Bracket 2 with 10% tax : $15,000 - (0.10 x $15,000) = $15,000 - $1,500 = $13,500
Bracket 3 with 20% tax : $15,000 - (0.20 x $15,000) = $15,000 - $3,000 = $12,000
Bracket 4 with 30% tax : $15,000 - (0.30 x $15,000) = $15,000 - $4,500 = $10,500
Bracket 5 with 40% tax : $5,000 - (0.40 x $5,000) = $5,000 - $2,000 = $3,000
$15,000 + $13,500 + $12,000 + $10,500 + $3,000 = $54,000 after income taxes

As you can see, it is impossible for you to make less money after a pay raise. Bob's paying 40% not on all his income, but rather the income above $60,000, i.e. he's paying 40% on only $5000. Bob would clearly make more money! But hell, for argument's sake, let's do the math and assume the last tax bracket was 100%:

Bracket 1 with 0% tax : $15,000 - (0.00 x $15,000) = $15,000 - 0 = $15,000
Bracket 2 with 10% tax : $15,000 - (0.10 x $15,000) = $15,000 - $1,500 = $13,500
Bracket 3 with 20% tax : $15,000 - (0.20 x $15,000) = $15,000 - $3,000 = $12,000
Bracket 4 with 30% tax : $15,000 - (0.30 x $15,000) = $15,000 - $4,500 = $10,500
Bracket 5 with 100% tax : $5,000 - (1.00 x $5,000) = $5,000 - $5,000 = $0
$15,000 + $13,500 + $12,000 + $10,500 + $0 = $51,000 after income taxes

So with the top bracket having a rate of 100%, you can see that you do not make less money than the person in the lower tax bracket. You would make the same as someone in the lower bracket.

[juptVatoSoito]

I like how you reply to my post as if you understood the points presented about how the marginal tax system works, and then follow up with this:


I mean, holy crap dude. Did you even read my post? Those three individuals are morons for turning down a pay raise out of some ridiculous belief that they would lose money by taking a pay raise. Apparently I need to break this down using actual math to make this concept clear.

Let's establish some tax brackets. Let's say for simplicity's sake, the country of Parnonia has five tax brackets as follows:

$0-15,000 : 0% tax
$15,001-$30,000 : 10% tax
$30,001-$45,000 : 20% tax
$45,001-$60,000 : 30% tax
$60,001+ : 40% tax

The land of Parnonia is filled with earners that make various amounts of income. Bob is making $60,000 a year before taxes, sitting pretty in the 30% tax bracket. Parnonia has a marginal tax system much like the United States! Bob however, is an ignorant, low-information voter who screams and moans about the evils of taxes and doesn't know how a marginal tax system works. He complains that he's paying 30% of his income in taxes, and grumbles further that if he makes a single dollar more, he'd have to pay 40% instead since it'd put him in the next tax bracket. Freaking socialists! Despite being offered a $5,000 raise at work, he rejects it out of a belief that he's going to lose money! After all, he did the math:

$60,000 - (0.30 x $60,000) = $60,000 - $18,000 = $42,000 after income taxes
$65,000 - (0.40 x $65,000) = $65,000 - $26,000 = $39,000 after income taxes

See! Taking the raise would put him in a higher tax bracket, and the $5,000 raise would mean he'd actually make $3,000 less instead!


.........


Except that's not how the tax system works at all. In a marginal tax system, you only pay taxes on the income within each respective bracket. Here's how the math would actually work:

What Bob Makes After Taxes @ $60,000/year
Bracket 1 with 0% tax : $15,000 - (0.00 x $15,000) = $15,000 - 0 = $15,000
Bracket 2 with 10% tax: $15,000 - (0.10 x $15,000) = $15,000 - $1,500 = $13,500
Bracket 3 with 20% tax: $15,000 - (0.20 x $15,000) = $15,000 - $3,000 = $12,000
Bracket 4 with 30% tax: $15,000 - (0.30 x $15,000) = $15,000 - $4,500 = $10,500
$15,000 + $13,500 + $12,000 + $10,500 = $51,000 after income taxes

What Bob Makes After Taxes @ $65,000/year
Bracket 1 with 0% tax : $15,000 - (0.00 x $15,000) = $15,000 - 0 = $15,000
Bracket 2 with 10% tax : $15,000 - (0.10 x $15,000) = $15,000 - $1,500 = $13,500
Bracket 3 with 20% tax : $15,000 - (0.20 x $15,000) = $15,000 - $3,000 = $12,000
Bracket 4 with 30% tax : $15,000 - (0.30 x $15,000) = $15,000 - $4,500 = $10,500
Bracket 5 with 40% tax : $5,000 - (0.40 x $5,000) = $5,000 - $2,000 = $3,000
$15,000 + $13,500 + $12,000 + $10,500 + $3,000 = $54,000 after income taxes

As you can see, it is impossible for you to make less money after a pay raise. Bob's paying 40% not on all his income, but rather the income above $60,000, i.e. he's paying 40% on only $5000. Bob would clearly make more money! But hell, for argument's sake, let's do the math and assume the last tax bracket was 100%:

Bracket 1 with 0% tax : $15,000 - (0.00 x $15,000) = $15,000 - 0 = $15,000
Bracket 2 with 10% tax : $15,000 - (0.10 x $15,000) = $15,000 - $1,500 = $13,500
Bracket 3 with 20% tax : $15,000 - (0.20 x $15,000) = $15,000 - $3,000 = $12,000
Bracket 4 with 30% tax : $15,000 - (0.30 x $15,000) = $15,000 - $4,500 = $10,500
Bracket 5 with 100% tax : $5,000 - (1.00 x $5,000) = $5,000 - $5,000 = $0
$15,000 + $13,500 + $12,000 + $10,500 + $0 = $51,000 after income taxes

So with the top bracket having a rate of 100%, you can see that you do not make less money than the person in the lower tax bracket. You would make the same as someone in the lower bracket.

LOL...like the way you put that together.

I would just like to point out that it's not IMPOSSIBLE to make less money after getting raise...if, say, that highest tax bracket in Parnonia was 110%! LOL

[ZonaPutaX]

That's one way of explaining it. Another way is to simply point people to here and let them see the numbers for themselves. It's mind-boggling how so many adults fail to grasp our simple tax system, and proceed to make some of the dumbest decisions of their lives based on their misunderstanding.