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Home Publications Blogs Beat the Press USA Today Is Too Dumb for Words When It Comes to Taxes

USA Today Is Too Dumb for Words When It Comes to Taxes

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Sunday, 04 September 2011 22:41

Arghh!!!!!!!! Don't you have to know anything to write for a major newspaper these days? USA Today told readers that:

"That raise actually might not be as good as it looks. The extra money is nice, but it could very well bump you into the next tax bracket, possibly leaving you with less money than you had before the raise."

 

No, no and 286,000 times no! The tax system brackets give marginal rates. This means that if the raise bumps you into a higher bracket then you pay more taxes only on the income in the higher bracket. Suppose that the tax bracket for income under $200k is 25 percent, and for income over $200k is 33 percent. If you get a raise that pushes your income from $195,000 to $205,000 then you only pay the higher 33 percent tax rate on the $5,000 that is above the $200k threshold not your whole income. Therefore, there is no (as in none, nada, not any) way that getting more money, and being pushed into a higher tax bracket will leave you with less money after taxes.

Don't the writers and editors at USA Today know this?

Comments (28)Add Comment
I've seen this before.
written by procopius, September 05, 2011 12:00
It was common decades ago. Maybe it was the 70s. I don't remember specific occasions, but I remember reading this complaint in many places at a time when inflation was pushing wages up. I could never figure out why writers who were supposed to be knowledgeable about business and economics could repeat such obviously wrong statements, but they did then and apparently are still doing it. Who benefits from spreading such stupid misinformation?
Silver Lining
written by (Not That) Bill O'Reilly, September 05, 2011 12:17
At least we can find solace in surmising that USAToday reporters and editors don't have any firsthand experience with high marginal tax brackets.
Withholding tables
written by EmmaZahn, September 05, 2011 12:55
Happened to me once. Not that I actually paid more in taxes but because of the tables or the algorithm used to calculate the tax withheld, I got a cola raise but my bi-weekly paycheck ended up a bit smaller. I thought it was funny because of the look on my bosses' face when I showed it to him.
It's all about marginal rates, but those might be over 100%, Low-rated comment [Show]
Slight typo there, I think.
written by Billy O'Connor, September 05, 2011 2:14
You have the 33/25 mixed up in the under/over sentence.
I can understand ...
written by John Puma, September 05, 2011 3:17
the necessary and unending, if tragic, recitations of "should have knowns" for the NYT and the WA Post.

But any expectation of journalism from USA Today is wasted effort.
Baker Too Dumb to Understand The Marginal Revolution, Low-rated comment [Show]
...
written by Jim In Panama, September 05, 2011 9:06
Its only a major newspaper for people staying in hotel rooms
LA Times had the same thing
written by Lolly, September 05, 2011 10:34
A couple years back when Obama was trying to pass his first budget proposal. The LA Times ran an entire article featuring people who were desperately trying to cut back their income because they were sure if they went over the magical new tax bracket number they would lose more money than they earned. I think it featured a woman who was a dentist who wouldn't take any new patients because she was terrified her income would jump into the next bracket. There were quotes from her about how horrible it was that she would have less money if she worked more, blah blah.
Lolly's Dentist
written by James, September 05, 2011 11:47

would have zero problem of having less work only if her ADA or AMA erects less of a barrier to entry for foreign dentists. My dentist friends from oversea struggles for years just to finally got to practice here despite they were qualified and clients love them.

They were less arrogant and less entitlement feeling (talking about GOP's continual complaints about entitlements) toward their clients.

Yes, tell LA Times' Dentist, she just have to tell her ADA or AMA welcome foreign labor instead of spending money lobbying against them.
USA To Dumb For Words
written by rickstersherpa, September 05, 2011 11:51
No, apparently the editors and writers at USA Today are just stupid for words.
Marginal Ignorance
written by J, September 05, 2011 12:04
I had a friendly argument for about 20 minutes with my seatmate on an Amtrak to Texas about how the successful were being bled dry by taxes before we both realized that he didn't understand marginal tax rates. I find that ignorance extremely common amongst people making that argument - it's as if they've been programmed with a minimal set of truisms and distortions about how taxes work that allow them to come to simple, but incorrect conclusions. After they've locked into those conclusions, they are impervious to the evidence from their own tax bills that some of what they've been told doesn't have any relation to reality.
...
written by PeonInChief, September 05, 2011 12:19
I've never been good at math--calculators were invented for people like me, and my husband balances the checkbook so I don't screw it up--but I'm amazed at the lack of basic arithmetic literacy in the world. I once actually had to explain to someone that if prices doubled and then fell 50%, they had fallen to the beginning point. And the person was well above the age of 10.
More of the Same
written by Ethan, September 05, 2011 12:45
Back in the early '50's I was in Jr.Hi. and my dad was manager, and part owner, of a small electric motor manufacturer. He told me that the employee representative had complained about a scheduled wage increase because it would bump people into a higher tax bracket. I was about 12 - 13 years old, but even I understood how stupid that was. Here we are 60 years later, and people still don't understand marginal rates???!!!
...
written by esther, September 05, 2011 1:15
My favorite is people who were dismayed when I told them my house was payed off. Oh, that's terrible. You don't get the mortgage deduction on your taxes!

Yep, I'd like to pay interest to the bank just so I can get a refund of 30% of it back at the end of the year. Makes perfect sense to me. WTF is the matter with people. Yes, it would be much better to have a $1,500 mortgage payment than a paid off house just for that yearly tax deduction.
so-called "dead zone"
written by Matt, September 05, 2011 2:23
@Boris: That's an interesting site, but remember that it's perfectly rational for a low-income earner to prefer the "pay cut" that comes with qualifying out of public aid. Food stamps and Section 8 housing, for instance, come with big strings attached that make them less valuable than their "cash equivalent." And then there's simple human pride. Set aside Reagan's paranoid nightmares about "strapping young bucks" conspiring with "welfare queens" to have enough babies to buy Cadillacs and T-bone steaks. Anyone who's ever actually been near that kind of poverty knows that it sucks, and that the welfare system is designed to humiliate you at every turn.

If you start from the assumption that everyone making less than $40,000/year is (a) motivated solely by a desire to collect as much welfare as possible while earning as little money as possible and (b) can predict to the penny with 100% accuracy the tax and benefit implications of everything they do, then yeah, public aid would need to be changed to eliminate the loopholes. But in real life, the "left-liberals" that site wants to blame everything on are correct in thinking that most people really don't want to be on public assistance.
To be [i]entirely fair[/i] to USA Today
written by anthrosciguy, September 05, 2011 2:53
To be entirely fair to USA Today, I used to think this too... but I was 12 years old at the time. I got it a year later.
Ignorance Of Existing Policy: It's The New Black
written by Southern Beale, September 05, 2011 4:09
Aw, don't pick on USA Today. I see stuff like this ALL the time. Why just yesterday on Face The Nation, Bob Schieffer asked Jon Huntsman of his tax policy idea, "does that mean that Social Security recipients are now going to have to pay taxes on their income?"

Apparently Schieffer, who is older than God and presumably receives Social Security, is unaware that he pays taxes on that income.
Matt, I wasn't commenting on people's motivations
written by Boris, September 05, 2011 10:55
Matt, I wasn't endorsing anything on that site other than the numbers.

And the numbers say that for someone who's earning less than $40k and actually getting the various government programs they qualify for a pay raise may well leave them with less after-tax money. There's no comment here about whether people _want_ to be in that position or not; I agree that no one really wants to deal with the crap involved in actually qualifying for the various programs. But there _are_ people in that position, and the fact that giving them a raise leaves them with less money is completely ridiculous.

Or put another way, you're arguing that high marginal tax rates are not necessarily a disincentive for people to work because they may not realize they're that high or because there may be other benefits to working, like higher self-esteem. I completely agree; what I'm saying is that marginal rates specifically higher than 100% are a travesty; doubly so when we're talking about people who're poor to start with. They're a travesty because they mean people who try to do better get screwed, not because they cause people to not try to do better.
USA Today claims to be quoting a math teacher
written by TreeTop, September 06, 2011 12:57
According to their article, this tip about raises comes from "math educator Laura Laing, author of Math for Grownups." I wonder if Laing really made that mistake or if the USA Today reporter misunderstood the book.
Free "Math for Grown Ups"
written by TreeTop, September 06, 2011 1:02
As it happens, Laing's publisher is giving away the e-book addition of Math for Grownups this week. http://mathforgrownups.com/
More innumeracy
written by Rob Lewis, September 06, 2011 5:18
My favorite bit of ignorance, seen constantly, is when a reporter writes that a powerplant generates "5000 kilowatts per year." This is a meaningless statement. Presumably they meant "5000 kilowatt-hours per year".
Actually, it gets worse...
written by anonanon, September 06, 2011 5:42
USAToday has now published a 'clarification' which addresses the marginal tax confusion. However the clarification itself contains some odd advice.

Ms Laing says that instead of paying $1425 in taxes on the additional $6000 income, Kyle may be "...better off asking for another week of vacation, a cappuccino machine in the break room, and a VIP parking space". Really?

With the incremental net income of $4575 Kyle could afford to take another week of vacation (without pay), buy a top end cappuccino machine, and roller skates to get from his peon parking spot to his office, and still have money left over.

Ms. Laing may have the math right in her book, but her advice does not reflect sound economic thinking.
Old stuff recycled for political effect
written by Jerry Buerge, September 06, 2011 9:24
This kind of promotion of CRAP (Conservative Republican Approved Propaganda)has been a staple promotion of Limbaugh for years. He has fed that tripe to his ditto-heads as a constant diet and has never been given a comeuppance for it yet, as far as I know.
Lab Supervisor
written by Beth Roberts, September 07, 2011 6:07
In the mid-70's I worked an extra 8 hours one week, and made $5 more in my paycheck. Is it the payroll office that doesn't get marginal tax rates?
They are finally reading Dean themselves and getting a clue
written by AndrewS, September 07, 2011 7:33
At least they have fixed it, maybe thanks to Dean? It now reads:

"Sizing up a raise

A hefty raise might not be as big as it looks. Extra money could bump you into the next tax bracket, which means you’ll pay a higher tax rate on earnings above a certain threshold. Relax: Your earnings below that threshold are still taxed at the previous, lower tax rate."


And EmmaZahn,no it didn't happen to you. What you describe is only a matter of withholding. You can make your check bigger or smaller anytime you want by changing your withholding. If you saw your check get smaller with a raise, your withholding increased more than your tax liability and you will see a bigger refund at tax time. You did not net less pay with your raise.
AMT?
written by Jack Funchion, September 07, 2011 12:18
Wouldn't AMT be an exception to "none, nada, not any"? I'm pretty sure that happened to me one year.
It's the way withholding is calculated
written by slb, September 08, 2011 4:06
Beth Roberts, I think what happened to your overtime pay is the result of the way withholding is calculated. It happens to the people where I work at bonus time. The federal (and possibly state) income tax withheld from a paycheck in any given pay period is calculated based on the assumption that you get that amount every pay period for the entire year. A one-time pay boost could easily put you into another bracket, so you get over-withheld; it gets squared up when you file your tax return for the year.

The effect was more noticeable in the 1970s, when marginal rates were quite a bit higher than they are currently.

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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