Upper-Income Taxpayers Look for Ways to Sidestep Obama Tax-Hike Plan
President Barack Obama's tax proposal — which promises to increase taxes for those families with incomes of $250,000 or more — has some Americans brainstorming ways to decrease their pay, even if it's just by a dollar.
A 63-year-old attorney based in Lafayette, La., who asked not to be named, told ABCNews.com that she plans to cut back on her business to get her annual income under the quarter million mark should the Obama tax plan be passed by Congress and become law.
So far, Obama's tax plan is being looked at skeptically by both Democrats and Republicans and therefore may not pass at all.
"We are going to try to figure out how to make our income $249,999.00," she said.
I may not be the smartest blub when it comes to economic issues and taxes, but even I know that income tax doesn't work that way. A tax increase effects marginal dollars as income grows, not the entire income.
In other words, if you make $275,000, then only that additional $25,000 is taxed at the higher rate. The first $250,000 is taxed at the lower rate.
Therefore, you don't "save" any money by intentionally lowering your income to $249,999. All other things being equal, an income of $249,999 will give a lower after-tax income than $251,000.
But fine. If rich people want to make sure their income is under $250,000, then all they need to do is send me the difference. If their pre-tax income is $275,000, send me $25,000.01. I'll send a bill for my tax consulting services so it is all nice and legal.