struggling to make sense of the political process.

I hear relentless criticizing, mostly from politicians, but also from mainstream news media (and the individuals that make it into interviews) that taxes are too high and too low and too medium ad nauseum. I hear enough disembodied statistics to fill a morgue.

Recently a ‘millionaire tax’ included in the House of Representatives version of health care reform legislation fired up ostensible debate. The tax would add a 5.4% surtax on individual income over $500,000 ($1,000,000 for joint filers). This would affect about 400,000 people (.3%).

Full disclosure: I don’t make over $500,000… yeah, could you have guessed?

Listening to the renewed fury of (typically) conservative news and punditry I feel the sudden and desperate need for historical perspective on tax rates. I understand that how much we have historically taxed is not necessarily evidence for how much we should tax, but it does help with evaluating arguments (and the credibility of those arguing) that cite deviation from historical precedent as cause for alarm.

Q: What is the tax structure right now?

There are currently six marginal tax brackets (I’ll use number for a single filer. Generally, for couples filing jointly the income is doubled in every bracket. There are some relatively minor (for my purposes) exceptions)

10% — $0-$11,950
15% — $11,950 – $45,550
25% — $45,550 – $117,650
28% — $117,650 – $190,550
33% — $190,550 – $373,650
35% — $373,650+

So many points—first, these are marginal tax rates (maybe this is common knowledge, but I didn’t know…maybe because I have never made it out of the first tax bracket), which means that overall tax rates for filers at the top of their respective brackets are:

10% — $11,950
13.7% — $45,550
20.6% — $117,650
23.4% — $190,550
28.1% — $373,650
32.4% — $1,000,000 * (for this I used a hypothetical person making $1,000,000 annually)

This gives a more accurate and moderate (maybe why politicians don’t often use these numbers) show of rates.

Okok, the federal income tax code is not flat, it is indeed (in the most literal way) progressive. But how progressive is it. I did some amateur math and got numbers for % marginal tax increase per dollar. For every dollar a filer makes within the given bracket this is the percentage increase of their tax rate.

Bracket 1: .00084% * (this is kindof an aberration, since at $0 income the filer pays 0%)
Bracket 2: .00015%
Bracket 3: .00014%
Bracket 4: .000041% (note the extra zero)
Bracket 5: .000027%
Bracket 6: .0000032% (another extra zero) *(this again is a hypothetical filer making $1,000,000

So this is (to me) interesting. It shows that while the marginal tax rate and the overall tax rate do increase as one makes more money, the rate of that increase actually declines. Like serious-2-powers-of-10 type decline.

Historically: Our current tax rate for top earners (over $373,650 per annum) is lower than it has been since the early 1930’s.

Taxfoundation.org gives comprehensive data