Sunday, April 15, 2007

One Sad Tax Code

April 15th is upon us, and my taxes have been filed. What was my marginal tax rate this year? Well, that is a really good question. It looks to me like I was right at the cusp of getting hit with the Alternative Minimum Tax. Last year, I did get caught by that, but this year, for some odd reason unknown to me, I did not. It was close; the calculation required computes your tax under the regular code and under AMT, and if AMT is greater, then you pay according to that.

In an earlier post this year, I noted my uncertainty then as to my marginal tax rate, saying it would be either 26% or 42%. It turned out to be more like the 42%, the regular code rate plus Medicare and the effects of phasing out exemptions and deductions.

What kind of tax code do we have, where during the year when I am making income-earning decisions, I cannot determine what my effective tax rate will be? I mean, let's just totally screw up our incentives. If I had made an additional $10,000, I would have netted $7200 (AMT, with the rate this year of 28%) or $5800 (regular code). Anyone who says that a 14% difference in your rate of pay will not make a difference in what you do, is talking nonsense.

As I said before, the Democrats have a chance to show the country that they can respect individual privacy (easy for them); construct a reasonable tax code and manage government spending (not too hard; Bill Clinton did a fair job); and maintain a strong national defense posture (seemingly impossible for the current Democrats). Probably if they got two out of three, they would have a chance to govern for a while. One out of three should mean the wilderness for them.

1 comment:

Thelma said...

Interesting to know.