My 1st Million At 33 – yes, you can do it too

Your marginal tax bracket essentially defines how many cents after tax you get for every additional dollar that you earn.  A marginal tax rate of more than 50% will inevitably reduce economic activities.  If after all of your wits and labor and all the risk-taking, and you get less than the taxing by government, obviously anyone would be less incentivized to work.

Despite the progressive design of the US tax system, US tax is not really progressive (meaning that the more you earn, the higher marginal tax brakets that you are in).  When you consider the payroll taxes which include the social security and medicare taxes, the tax system is no longer progressive.  While the US federal government reports its deficit number under a unified budget (of which the actual deficit is the sum of the surplus/deficit of the ongoing budget deficit and the social security system surplus), payroll taxes are often looked at separately.  Obviously, the payroll taxes tax the poor and middle class people the heaviest, and raise the threshold for the decision of whether getting a job that pays close to minimum wage, or simply obtaining social welfare.

In a future post, I will make a plot of the marginal bracket versus wage income.  But here, I would like you to try out my tax calculator.  I tried to get this out before April 17, the tax deadline.  There are still a few things that are not perfect yet.  However, the tax calculation is accurate.  The thing that I like most of this calculator is that it’s a one and half page long instead of hundreds of tax instructions or tens of screens of turbo tax questionaires.  And experimenting the entries with different numbers will give you a very good idea about the effect of different types of income at the different levels.  The the most important thing is that it gives you the tax benefits of owning the home accurately by accounting for the standard deduction that you would have used.  Unless your income is quite high, the tax benefits reduction is often significantly less than your marginal tax bracket.