Coming Together - Tax and Benefit Example

Tax and Benefit Example

In this example, consider a family for which the situation calls for basic living expense funding totaling $10,000 per year. (This is the data for the graph in the Taxation page.) Assume that the flat rate on income tax is 35%. It is hoped that a value lower than this will suffice after the transition. The following table summarizes the family’s financial relationship with the government:

Annual
Income Government
Benefit Tax
Rate Tax Tax Net of
Benefits Net Tax
Rate Spendable
Income

$0
$10,000

35%
$0 -$10,000
$10,000

$10,000
$10,000

35%
$3,500 -$6,500 -65%
$16,500

$20,000
$10,000

35%
$7,000 -$3,000 -15%
$23,000

$30,000
$10,000

35%
$10,500 $500 2%
$29,500

$40,000
$10,000

35%
$14,000 $4,000 10%
$36,000

$50,000
$10,000

35%
$17,500 $7,500 25%
$42,500

$60,000
$10,000

35%
$21,000 $11,000 18%
$49,000

$70,000
$10,000

35%
$24,500 $14,500 21%
$55,500

$80,000
$10,000

35%
$28,000 $18,000 23%
$62,000

$90,000
$10,000

35%
$31,500 $21,500 24%
$68,500

$100,000
$10,000

35%
$35,000 $25,000 25%
$75,000

$125,000
$10,000

35%
$43,700 $33,750 27%
$91,250

$150,000
$10,000

35%
$52,500 $42,500 28%
$107,500

$175,000
$10,000

35%
$61,250 $51,250 29%
$123,750

$200,000
$10,000

35%
$70,000 $60,000 30%
$140,000

$225,000
$10,000

35%
$78,750 $68,750 31%
$156,250

$250,000
$10,000

35%
$87,500 $77,500 31%
$172,500

$300,000
$10,000

35%
$105,000 $95,000 32%
$205,000

$400,000
$10,000

35%
$140,000 $130,000 33%
$270,000

$500,000
$10,000

35%
$175,000 $165,000 33%
$335,000

$600,000
$10,000

35%
$210,000 $200,000 33%
$400,000

$700,000
$10,000

35%
$245,000 $235,000 34%
$465,000

$800,000
$10,000

35%
$280,000 $270,000 34%
$830,000

$1,000,000
$10,000

35%
$350,000 $340,000 34%
$660,000

Annual Income	Government Benefit	Tax Rate	Tax	Tax Net of Benefits	Net Tax Rate	Spendable Income
$0	$10,000	35%	$0	-$10,000		$10,000
$10,000	$10,000	35%	$3,500	-$6,500	-65%	$16,500
$20,000	$10,000	35%	$7,000	-$3,000	-15%	$23,000
$30,000	$10,000	35%	$10,500	$500	2%	$29,500
$40,000	$10,000	35%	$14,000	$4,000	10%	$36,000
$50,000	$10,000	35%	$17,500	$7,500	25%	$42,500
$60,000	$10,000	35%	$21,000	$11,000	18%	$49,000
$70,000	$10,000	35%	$24,500	$14,500	21%	$55,500
$80,000	$10,000	35%	$28,000	$18,000	23%	$62,000
$90,000	$10,000	35%	$31,500	$21,500	24%	$68,500
$100,000	$10,000	35%	$35,000	$25,000	25%	$75,000
$125,000	$10,000	35%	$43,700	$33,750	27%	$91,250
$150,000	$10,000	35%	$52,500	$42,500	28%	$107,500
$175,000	$10,000	35%	$61,250	$51,250	29%	$123,750
$200,000	$10,000	35%	$70,000	$60,000	30%	$140,000
$225,000	$10,000	35%	$78,750	$68,750	31%	$156,250
$250,000	$10,000	35%	$87,500	$77,500	31%	$172,500
$300,000	$10,000	35%	$105,000	$95,000	32%	$205,000
$400,000	$10,000	35%	$140,000	$130,000	33%	$270,000
$500,000	$10,000	35%	$175,000	$165,000	33%	$335,000
$600,000	$10,000	35%	$210,000	$200,000	33%	$400,000
$700,000	$10,000	35%	$245,000	$235,000	34%	$465,000
$800,000	$10,000	35%	$280,000	$270,000	34%	$830,000
$1,000,000	$10,000	35%	$350,000	$340,000	34%	$660,000

The tax proposal under this ComingTogether Plan does provide progressivity in the tax paid net of benefits received, but this progressivity comes without the sharp changes in the citizen’s situation due to entering a new tax bracket or becoming ineligible for a particular benefit. Combining this tax with the Social Security tax would also remove the regressive nature that enters into the current system at the point that the Social Security maximum is achieved.

NOTE: If you would like to see how your own financial situation would look under this ComingTogether Plan, click here. This is an Excel spreadsheet, so you must have software on your computer to use this, such as Excel or Open Office (free).

Just allowing more taxpayers to do their own taxes again, instead of paying an accountant, would constitute a de facto tax cut for many. Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, April 17, 2002.