Taxing Income Beyond $10 Million at 70% Looks Like This

Fahrneganzz is a place I share ideas and images that strike me as worth thinking about, sometimes with my commentary. This is the first time I have shared a detailed analysis of a question as complex as tax rates that I found on Facebook. But it does help us make sense out of a complex question that is likely to be debated in the 2020 electoral cycle. 

The four graphs and the explanations are from Jason Smith's facebook post (see link at end). The tax rate on income earned beyond $612,000 is (under our current tax code) essentially a flat tax. We have a somewhat progressive tax code, but we see below that progressivity stops at income earned beyond $612,000. Thus, the proposal.

Graph 1

This is the chart from $0 to $200,000 annual household income. The green is the maximum taxes you could pay, before credits, adjustments, etc, etc.

The dashed line shows the federal poverty line for a family of 2.

As of 2014, 94% of all US households fall on this chart.

(https://en.wikipedia.org/wiki/Household_income_in_the_United_States#Distribution_of_household_income_in_2014_according_to_US_Census_data)

Graph 2

Let's bump it up a bit, to show the maximum taxes paid for $0 to $500,000 a year.

The chart from before is now in the box on the left.

You can see a couple of mild bends in the top edge of the blue, where marginal tax brackets change. The overall effect is smooth.

Graph 3

And let's keep going. This is $0 to $4,000,000 – that's four million – per year for a single household. That's more money than most of us will make in our entire lifetimes, much less *one year*.

Again, 94% of us are in that tiny little box on the lower left.

At this point, the blue line is nearly straight to our eyes. Our entire tax bracket system is down in the bottom left quarter of the graph. Nothing above $612,350 changes, it's all even and corresponds to what is normally called a 'flat' tax.

Graph 4

Now we're finally getting to the scope of what the Ocasio-Cortez proposal was.

A 70% marginal tax rate over $10 million. That's the proposal.

That's the triangle on the right, after crossing the dotted line of $10M. That sliver of a triangle is what the entire argument is about. That's where it jumps rather startlingly from 37% to 70%, and... yet... it's not really a massive drop, is it? The big blue wedge is still a big blue wedge.

We are down in that little box on the left, still, except now it's nearly a dot. The top edge of the blue region is now a line, we can't even *see* the entirety of our tax bracket system at this scale. Every bit of hair pulling you do each year doing your taxes is lost in the noise now.

Thanks to Jason Smith.