Over the last week or so much has been debated about Obama’s new budget and his plans for the future, especially his plans for those who find themselves in the upper 5% of income earners in the United States.

I’d like to use this post to set the record straight on something first, we keep hearing that the various changes to the tax code will not affect anyone making less than $250,000 a year.  We hear that 95% of workers will not be affected.  We’re told this must be done to equalize the disparity in income and targeting the “rich” to pay more is fair because they can afford to pay more.

First things first – where you fall for taxes depends on your filing status.  We are told that the two upper tax rates are those that will rise – the current 33% will rise to 36% and the current 35% will rise to 39.6%, all other tax rates will remain the same.

While we keep hearing this magical number of $250,000 a year in earnings – think again, it’s really lower than that number if we look at filing status and when each hits the current 33% and 35% tax rates on earnings. 

To be clear too – this isn’t just your paycheck, it’s your earnings and includes interest earned, dividends, previous tax year refunds from your state or local government, alimony received, etc. on this list of income you list on your 1040 to determine your adjusted gross income.

If you’re single, you’ll hit the 33% tax bracket once your income (including all the goodies above to determine your AGI) hits $175,000; married with no kids, you’ll see yourself hit the 33% tax bracket at $220,000 of income; and if you’re married with two kids, you’ll see the 33% tax bracket when you reach $230,000.

Notice, each of the above are UNDER $250,000 – and they’re all going up! 

So don’t believe the media when they keep singing the $250,000 threshold, it’s bogus and a fairy tale.

Interesting finding for me today – I wanted to understand how it is that those in the upper income brackets aren’t paying their fair share, so I crunched some numbers.

I’m still trying to understand how it’s unfair that, say a married couple with two kids, with an income of $150,000 – who to keep this simple only has the standard deduction and personal deduction – pays $23,963 in federal income taxes, but the married couple making twice as much with two kids pays $71,052 in federal income taxes – or to put it bluntly 2.9-times as much tax rather than twice as much for making twice the income!  That’s somehow not quite fair enough yet?  We have to increase how much is taken from the couple earning $300,000, despite their already paying more than twice as much as the couple earning half what they do?

So now, the powers that be have somehow come to the conclusion that $71,052 isn’t enough, that instead they’ll take $82,023 from the couple making $300,000 to be “fair”? 

I don’t know about you, but taking home $914.25 LESS each month will certainly lead the family with the $300,000 income to figure out how to either live on less OR PAY LESS TAXES because I haven’t even touched on the mortgage deduction being reduced, charitable contribution deductions being reduced, capital gains increased, and the potential that the cap on social security taxes may – it’s being discussed right now – be lifted so all income is affected, not just the first $106,800. 

That last one is going to be the thousanth cut for employers, especially the 23-million small business owners out there that employ greater than 116-million Americans!

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