What Are Tax Brackets? - Speak Out California Weblog

What Are Tax Brackets? - Speak Out California Weblog

A "progressive" tax is one where the tax rate increases as income increases. A progressive tax structure consists of brackets. You pay a certain tax rate on income up to the next bracket. After that bracket is reached, a higher tax rate applies to income that is earned that is above that amount. Let's say that you pay 5% on income below $10,000 and 7% on income above $10,000. So if you make exactly $10,000 of income the tax is $500. At $10,100 the tax is still that $500 on the amount below $10,000 and $7 on the additional $100, for a total of $507. The key point is that only the amount in the new bracket is taxed at the higher rate.

I thought I understood tax brackets but apparently I didn't.

Many people believe that once you reach a higher bracket you pay the higher tax rate on all the income that falls below that bracket amount as well. I have actually talked to people who think they need to "get their income into a lower bracket" to avoid paying a higher tax rate, because they think that a higher tax rate would apply to all of the income they earned.

I remember thinking the same thing. I think we get a lot of misconceptions about taxes from "common knowledge" passed on from our parents, friends and coworkers. We need to be more diligent as a country and not let this type of misconception propagate.

Obama Tax Calculator

Obama Tax Calculator

Check out this tax calculator. It's pretty cool. This page also has a link to Obama's tax plan, and a comparison of Obama's plan to McCain's. This information is from Obama's official website so take it with whatever size grain of salt you feel necessary.

Much Ado About a 20 cent Fee You Can Easily Avoid

I addressed the proposed 20 cent bag tax that Seattle finally ended up passing in July here. Since then apparently a petition drive has been organized by the Coalition to Stop the Seattle Bag Tax. To this end they have gathered over 20,000 signatures to get an initiative on the ballot. They need 14,374 valid signature to get on the ballot so with the 20K they probably have the buffer they need to get into the next election after the November 4, 2008 election. There has been a minor controversy about the use of paid signature gatherers that may be lying about the petition being PRO bag tax and not ANTI to collect signatures. The CtStSBT is apparently mainly a front for the American Chemistry Council which is the lobbying arm of the plastics industry. The ACC picked up most of the costs of the paid signature gatherers and the web site linked to above.

Personally I am kind of amuse by the hysteria of the CtStSBT and their frantic attempt to stop the bag tax from going into effect. It seems to me the arguments against the bag tax can be boiled down into:

1) Its an unfair burden on the poor. It will cost them $300 a year that they can't afford.
While its true that poor people can ill afford to lose $300 to a bag tax all they really have to do is invest $5.00 in some reusable bags that will last them for years. I'm pretty sure that Seattle is going to be sending out free reusable bags in the near future anyway.

2)The City's own research shows that 91% of Seattle's citizens reuse or recycle their bags.

Hey that's great. We Seattlites always have been good recyclers, it's good to know that we are really kicking ass on reusing/recycling our plastic bags. I don't know what percentage reuse as opposed to recycle but it would be better for the environment and more energy efficient for the recycled bags to never have been made in the first place. I reuse my plastic grocery bags as garbage bags and to scoop kitty litter but I'm not going to freak out if I have to start buying garbage bags or some other small plastic bags to use instead.

This next one I've seen in the PI Sound Off section a couple of times (go down a few comments) but not on any anti-bag tax web sites:

3) The bag tax is a health hazard.

Seattle bag tax is health hazard especially for low income families. When meat is carried home in a reusable bag one day (and it leaks) and then vegetables are carried home the next day you get cross contamination. With reusable bags, you create a breeding ground for bacteria which will quickly build up to extremely dangerous levels (especially if the bags are kept in warm areas between uses) which can also contaminate other customers food items. Since the poor are less likely to pay the 20 cent bag tax, they are the ones most at risk - as well as those who are buying groceries behind them.

Ok, I'm no expert on bacteria, or leaking meat containers but this argument just seems silly to me. If meat leaking on vegetables was a huge health hazard I think we would have heard about massive outbreaks of death by now. I have been reusing both paper bags and cloth bags for a while now and I haven't noticed any meat leakage or any bacterial growth so far. I also figure if I my cloth bags got messy I'd just, well... clean them.

Look, I'm not a huge proponent of the bag tax but it seems to be a step in the right direction. I mean how many more people recycle now that it is mandatory then when it was a voluntary program. Even when it was voluntary the city "encouraged" people to recycle by making the recycle pick-up fees cheaper than regular garbage. Sometimes people have to be guided into doing the right thing. The plastic bag tax is not incredible burdensome and all you have to do to avoid it is to bring your own bag when you go grocery shopping. I think its a small price to pay to take a small step towards reducing waste and encouraging people to step out of the "disposable mindset" we find ourselves in these days.

Oh yeah and I'm also pretty cynical about the involvement of the American Chemical Council who's motives seem to by quite transparent.

A State Income Tax

I think it is about time for Washington State to adopt a state income tax. I know the thought of paying "more taxes" always makes people hit the panic button and freak out. I think that if people would sit down and really think about it they would see that it could be a good thing for both them and the state if handled properly.

First lets consider a few things:

1) Right now most of the state income comes from the 6.5% sales tax (plus most cities have their own sales tax).
2) Sales tax is an inherently regressive tax.
3) Although food is exempt from sales tax other necesseties like clothing are not.
4) The gas tax weighs heavily on the less wealthy because they cannot afford to live close to their jobs as rents push them away from city centers. I'm not saying that we should reduce the gas tax but reducing other tax burdens would help the poor deal with this.

Now I'm not for doing away with the sales tax and replacing it with a state income tax but I think we should be able to reduce the sales tax and replace the lost revenue with an income tax that is more progressive. The state income tax should probably have the first say $20,000 for a single adult $28,000 for a couple and x% more for each kid would be tax exempt and then a small income tax would kick in above that level. I'm just pulling those numbers out with a SWAG but they could be adjusted based on the state poverty level somehow to make sure the poor aren't burdened more then they are now.

King County Executive Ron Sims had a plan to introduce a state income tax back in 2004 when he was running in the primary for Governor but his plan would have abolished the state sales tax all together and replaced it with a graduated income tax that would have been the highest in the country.

I thinks a combined approach of the sales tax and a small income tax focussed mainly on the upper middle and upper class would be the best way to go.

Paper, Plastic or Neither

The mayor of Seattle and the city council president recently announced a plan to impose a 20-cent-per-bag "green fee" tax on paper and plastic bags distributed at grocery, convenience and drug stores. This tax is supposed to be an effort reduce garbage and encourage people to use reusable cloth bags when they do their shopping. The revenue from the tax is supposed to go to "to administer and enforce the rules, to buy and promote reusable bags, and to expand recycling, environmental education and waste prevention programs."

I am very much in favor of people using cloth bags to do their shopping. I also feel a tax or fee is a good way to encourage the uses of cloth or other reusable bags as long as the revenue is REALLY used for environmental programs. I am concerned that the revenue will just get siphoned off into the general fund and the program will just turn into a revenue generator like 2 MPH over the speed limit speeding tickets and picking one guy out of a crowd jay walking tickets. Just call me paranoid I guess.