Some People Do Not Understand How Taxes Work

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Clockwise from left: Orcel, Kraus, Sobotka, Thain Photo: istockphoto.com

Let's say you're barely one of what President Obama considers America's wealthy, pulling in just over $250,000 a year. Perhaps you were dismayed upon hearing that Obama intends to raise the rates on your tax bracket to finance health-care reform, among other things. So, because you naturally want to hold on to as much money as possible, you begin to concoct an ingenious scheme to reduce your income to just below $250,000 a year. After hours of crunching the numbers — which clients to drop, which days to take off work — you've found a way to stave off those higher taxes. "Ha-ha," you may chortle to yourself, or a nearby loved one. "My superior intellect has served me well once again." This is, apparently, the strategy that some people are actually taking, according to ABC News. But as a flabbergasted Jonathan Chait explains, this just isn't how taxes work.

A tax increase affects the marginal dollar that a person gains. That's [sic] means only every dollar over $250,000 is taxed at a higher rate. Obama is not proposing a tax system whereby somebody who goes from $249,999 to $250,000 suddenly becomes poorer. Nobody has ever enacted a tax hike like that in the history of the United States.

Whoops.

Wealthy Idiots Meet Idiot Reporter [Plank/New Republic]