Wednesday, July 15, 2009

When is 5% more like 10%?

When you're already paying 50% of your income to the government and the government decides to take another 10% of your remaining 50%—they raise your rate to 55%. That's an insight from Megan McArdle, though she puts it a little differently:
Our mental arithmetic is all wrong. We think of a 5% tax increase as a relatively small amount. But of course, once you're nearing a 50% average tax rate, a 5% tax increase is something like a 10% cut in the taxpayer's take-home pay.

1 comment:

Left Coast Rebel said...

Financial illiteracy is a major component of every problem that we face in this country.......