What Is It?
The marginal tax rate is the percentage of tax applied to your income for each tax bracket in which you qualify. In essence, the marginal tax rate is the percentage taken from your next dollar of taxable income above a predefined income threshold.
The marginal tax rate includes federal, state and local income taxes, as well as federal payroll and self-employment taxes. This differs from the average tax rate, which is the total tax paid as a percentage of total income earned.
How Does It Work?
Federal income tax in America is considered a progressive tax because it is based income tax brackets. This assures that there is an increase of the marginal tax rate for each bracket.
The next table shows the marginal tax rates for a single filing person.
| Tax Rate | Single Brackets |
|---|---|
| 10% | $0 - $8,350 |
| 15% | $8,351 - $33,950 |
| 25% | $33,951 - $82,250 |
| 28% | $82,251 - $171,550 |
| 33% | $171,550 - $372,950 |
| 35% | $372,950 and above |
As you can see, those who make the least amount of money owe the lowest marginal tax rate. The more money one makes, the higher the marginal tax rate for each bracket in which your income is taxed.
Example 1: Jim
Let's explain further. Everyone is taxed in brackets. For example, if Jim's earning is $100,000 he will not be taxed 28% on the entire amount. This is how Jim is taxed:
| Tax Rate | Single Brackets | Taxes |
|---|---|---|
| 10% | $0 - $8,350 | $835 |
| 15% | $8,351 - $33,950 | $3,840 |
| 25% | $33,951 - $82,250 | $12,075 |
| 28% | $82,251 - $171,550 | $4,970 |
| Total | $21,720 |
On $100,000 Jim pays $21,750 in taxes and not $28,000 (that would be 28% of $100000).
This clarification is important to stop misleading rumors. It has been suggested that if an employee earning $33,950 (take home after taxes: $28,857) is offered a $5 pay raise (enough to boost him into the next tax bracket), it will actually decrease the total amount he takes home (suggested take home after taxes: $25,466). But this is incorrect. Only the $5 above $33,950 will be taxed the higher 25%. In this case, his ACTUAL after taxes take home would be $28,861.
Example 2: Hillary
Let's talk about the rich guy, Let's assume that Hillary has also a work income of $100.000 at the current rate she will be paying $21,720 in taxes like Jim. Let's also assume that she has a capital gain from her Goldman & Sachs investments also of $100.000.
Because she is in the 28% tax bracket, she will be taxed at the flat rate of 15%, that is she will pay $15,000 in taxes. This is $6750 less than her income taxes. For argument sake, let's say she has $500,000 in capital gain, she would pay $75,000 in taxes. Fore more information, see long term capital gains tax rates.
So the majority of the American people, the 99% that is, will be just fine with Bernie Sanders economic plan. And if there is more to pay in taxes, this will be amply offset by saving in health care premiums elimination, substantial reduction in drugs expenditures, elimination of college tuition, increase in social security, creation of American jobs and so on and so forth. This is fiscal justice that it is the cornerstone of a modern Democracy. If you want democracy, that is.
Bernie Sanders Plan
The following table are the marginal tax rates under Bernie Sander's plan. Justice in numbers. Notice how capital gain is taxed at the same rate of work related income (why not?).
| Ordinary Income Tax Rate | Capital Gain Tax Rate | Single Brackets | Married Brackets | Head Household Brackets |
|---|---|---|---|---|
| 12.2% | 2.2% | $0 - $9,275 | $0 - $18,550 | $0 - $13,250 |
| 17.2% | 2.2% | $9,275 - $37,650 | $18,550 - $75,300 | $13,250 - $50,400 |
| 27.2% | 17.2% | $37,650 - $91,150 | $75,300 - $151,900 | $50,400 - $130,150 |
| 30.2% | 17.2% | $91,150 - $190,150 | $151,900 - $231,450 | $130,150 - $210,800 |
| 35.2% | 17.2% | $190,150 - $250,000 | $231,450 - $250,000 | $210,800 - $250,000 |
| 39.2% | 39.2% | $250,000 - $500,000 | $250,000 - $500,000 | $250,000 - $500,000 |
| 45.2% | 45.2% | $500,000 - $2,000,000 | $500,000 - $2,000,000 | $500,000 - $2,000,000 |
| 50.2% | 50.2% | $2,000,000 - $10,000,000 | $2,000,000 - $10,000,000 | $2,000,000 - $10,000,000 |
| 54.2% | 50.2% | $10,000,000 and up | $10,000,000 and up | $10,000,000 and up |
Example 1: Jim
Using Bernie's tax plan, if Jim's earning is $100,000 this is how he will be taxed:| Ordinary Income Tax Rate | Single Brackets | Taxes |
|---|---|---|
| 12.2% | $0 - $9,275 | $1131.35 |
| 17.2% | $9,275 - $37,650 | $4880.5 |
| 27.2% | $37,650 - $91,150 | $14552 |
| 30.2% | $91,150 - $190,150 | $2,672.7 |
| Total | $23,236 |
$23,236 - $21,720 = $1,516
Jim will pay about $1,500 more in taxes, but he will save $5,000 or more in drugs expenditure, health care premium. Without talking about free college, increased social security, more American jobs, better roads, bridges and so on. And more than anything else, he would have saved the Democracy from the rapacious hands of the plutocrats.
Example 2: Hillary
Using Bernie's tax plan, Hillary will be paying $23,236 like Jim. But, here where the rubber hits the road. The capital gain taxes on her $500,000 will be as follows:
| Capital Gain Tax Rate | Single Brackets | Taxes |
|---|---|---|
| 2.2% | $0 - $9,275 | $204.05 |
| 2.2% | $9,275 - $37,650 | $624.25 |
| 17.2% | $37,650 - $91,150 | $9,202 |
| 17.2% | $91,150 - $190,150 | $17,028 |
| 17.2% | $190,150 - $250,000 | $10.294.2 |
| 39.2% | $250,000 - $500,000 | $98,000 |
| Total | $135,352.5 |
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