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Comment by eridius | Hacker News Reader

I didn't realize this was a retroactive tax either, but does that really change anything? I mean, if you made a bunch of money in 2012, would you have decided to not earn that money simply because of a slightly higher tax burden? I keep hearing this argument that entrepreneurs would decide not to do such-and-such action that makes money if the taxes on that money were raised, but that's never made sense to me. I mean, they still make money. They make slightly less with the taxes raised, but that slightly less is still a vast improvement over the near-zero interest rate on just letting your money sit in a savings account.

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You're making the mistake that thinking they'll lower their income to avoid an increase in income tax means they'll make less money for the year. If the accountant says that because of the oddities of the tax code it's possible to exit the year with more money after taxes by lowering their income, you better believe they'll do it. But don't necessarily think they'll make less money overall, it's just that their reported income will be lower.

Why do you think all those CEO's are so nice to accept a $1 yearly salary and take stock instead?

So, in the end the guy still gets enough money to make him happy and tax revenue goes down.

The other popular option is to just move, which some countries in Europe are now experiencing.

Does raising the tax burden slightly on a particular bracket affect the presence of loopholes like this?

I wouldn't necessarily say they are connected, but they could be. If lawmakers change the tax code to increase the tax burden then it's possible they will introduce new loopholes. The Federal tax system is incredibly complicated and sometimes it seems that just reading the table of contents causes new loopholes to magically appear. Often times I think that simplifying the tax code would result in higher revenue even if you lowered the percentage on each bracket.

I know that when Obama originally threatened the progressive taxation, there was a contingent (I don't really know how large) of people whose incomes were 'on the bubble', or had incomes of between (let's say) $250-$255k who would have netted more bring home money by grossing less.

I mean, the 'more money' argument certainly applies once you've crossed the bubble threshold, but if you're making $251,000, if the additional tax is only 1%, that translates to $2,510, which takes your gross to under the $249,999 you could have made and been exempted from the increased tax.

For the self-employed, who have more control over their direct income, it might be more beneficial to take a slight pay cut and come home with more until you're able to give yourself a significant enough raise for it to not matter.

Edit: I've been corrected by others who are more savvy on taxes than myself. I admittedly am not in the >250k tax bracket, but regardless, there is a contingent of people who are also wrong, and are working their taxes in the way I described.

Perhaps you have never actually had to deal with the "incredible crushing burden" of a high tax bracket, but it does not work that way. The tax does not apply to all earnings, only the earnings over a threshold. If you cross the threshold then it is all earnings over that threshold which are taxed at the higher rate; in your example someone who made 251000 would pay the higher rate only on the $1000 over $250000.

That's not how income tax in the US works- each bracket applies to money made over a certain amount, so if you are earning 251,000, you would pay 35% (or maybe 39% in the future) tax only on the $1000 over 250k.

Marginal taxes don't work that way. If the additional tax is 1%, and you make $251,000, then you pay 1% * 1000 = $10 extra compared to not having the tax.

Good grief.

First, marginal tax rates are taxed on marginal income, not gross income. The $250K bracket only kicks in for dollars earned over $250K.

Second... there are, in fact, points on the income ladder with a marginal rate that is greater than 100%. But they're not a problem for the rich. They're a problem for the poor. At certain points, the removal of things like food stamps and tax credits can result in a marginal tax rate of greater than 100%, which is to say, you are literally better off making less gross income, because you will have more spending power.

That sounds pretty insane, I thought the standard thing for a progressive tax system would be to apply the extra tax% only on the income above the treshold? So an increase in income would never result in a decrease in net income, only a slightly "slower" increase in net income?

It is. The poster is just parroting moronic right-wing talking points.

I was misinformed. It happens.

Thank you for your understanding.

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