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More than half of Americans earning more than $100,000 a year say they're living paycheck to paycheck, according to a report from PYMNTS and LendingClub. This may be a result of a sneaky behavioral phenomenon called lifestyle creep, which is when a person's spending habits expand as their income rises. The rise in the cost of living complicates matters, as incomes have not kept up with inflation. Watch the video above to learn more about why Americans struggle to keep money in their pockets.
I’m unclear on how a tax rate of, say, 30% can eat 100% of some non-zero value.
Like, if you went from Gross: 1000, net 700 to gross 1100, you’re going to go to 770.
If income above 1000 is taxed at a higher rate of like 50%, you’d still keep half of the new 100 on top of whatever you were paying before for the bottom 1000.
Wait I think I figured out how people think it works. If you don’t understand tax brackets and think that your entire income is taxed at the new rate, there are some cases that could a net loss. That’s not how taxes work anywhere in the US to my knowledge.
Let’s say you have a gross income of 10,000 because that’s a nice round number. And you pay 10% of that in cases, because that’s also a nice round number. Your net take home is $9000.
Let’s say you then get a huge pay raise to 20,000. And in this incorrect model of taxation, that puts you in a new tax bracket of 70%. You would then take home 20,000 * .3 = $6000, which is less than your net was with a base of 10,000.
But, again, that’s not how tax brackets work so far as I’m aware anywhere in the US.
What would actually happen is the first 10,000 would be taxed at its rate. 10% in this case. You’d pay that $1000. If the next bracket went from 10,001 to 20000 and was at 70%, you’d pay 7000 of that chunk. So your net take home would be 9000 + 3000 = $12,000, which is definitely more than the $9000 you took home with a gross of 10k. Except the real numbers are different, filing status matters, and there’s different incomes and investments that complicate things. Here are some numbers: https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets
Progressive taxation should be taught everywhere if it’s not. I think I learned it in like 10th grade, but i’m old and my memory is foggy.
There is one instance in the US where you can lose money from a raise. You can deduct 100% of student loan interest as an “above the line” deduction (not an itemized deduction) unless you make more than $72,000 a year, and then you can deduct none of it.
Some people pay thousands of dollars in student loan interest a year. A $1 per year raise could put them over the line and cost them whatever the marginal tax rate is on those thousands of dollars.
It’s a stupid cliff of a line. It should be a curve.
I’m unclear on how a tax rate of, say, 30% can eat 100% of some non-zero value.
Like, if you went from Gross: 1000, net 700 to gross 1100, you’re going to go to 770.
If income above 1000 is taxed at a higher rate of like 50%, you’d still keep half of the new 100 on top of whatever you were paying before for the bottom 1000.
Wait I think I figured out how people think it works. If you don’t understand tax brackets and think that your entire income is taxed at the new rate, there are some cases that could a net loss. That’s not how taxes work anywhere in the US to my knowledge.
Let’s say you have a gross income of 10,000 because that’s a nice round number. And you pay 10% of that in cases, because that’s also a nice round number. Your net take home is $9000.
Let’s say you then get a huge pay raise to 20,000. And in this incorrect model of taxation, that puts you in a new tax bracket of 70%. You would then take home 20,000 * .3 = $6000, which is less than your net was with a base of 10,000.
But, again, that’s not how tax brackets work so far as I’m aware anywhere in the US.
What would actually happen is the first 10,000 would be taxed at its rate. 10% in this case. You’d pay that $1000. If the next bracket went from 10,001 to 20000 and was at 70%, you’d pay 7000 of that chunk. So your net take home would be 9000 + 3000 = $12,000, which is definitely more than the $9000 you took home with a gross of 10k. Except the real numbers are different, filing status matters, and there’s different incomes and investments that complicate things. Here are some numbers: https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets
Progressive taxation should be taught everywhere if it’s not. I think I learned it in like 10th grade, but i’m old and my memory is foggy.
There is one instance in the US where you can lose money from a raise. You can deduct 100% of student loan interest as an “above the line” deduction (not an itemized deduction) unless you make more than $72,000 a year, and then you can deduct none of it.
Some people pay thousands of dollars in student loan interest a year. A $1 per year raise could put them over the line and cost them whatever the marginal tax rate is on those thousands of dollars.
It’s a stupid cliff of a line. It should be a curve.