tax brackets

Clay Shentrup
2 min readSep 9, 2023

consider the following table of tax rates.

┌──────────────┬────────────┬────────────────┐
│ Gross Income │ Net Income │ Effective Rate │
├──────────────┼────────────┼────────────────┤
│ 12,000$ │ 17,200$ │ -43.33% │
│ 20,000$ │ 22,000$ │ -10.00% │
│ 25,000$ │ 25,000$ │ 0% │
│ 40,000$ │ 34,000$ │ 15.00% │
│ 80,000$ │ 58,000$ │ 27.50% │
│ 160,000$ │ 106,000$ │ 33.75% │
│ 320,000$ │ 202,000$ │ 36.88% │
│ 640,000$ │ 394,000$ │ 38.44% │
│ 1,000,000$ │ 610,000$ │ 39.00% │
└──────────────┴────────────┴────────────────┘

for instance, a person whose gross income is 40,000$ pays 15% of their income in taxes. whereas someone who earns a million pays 39%. this sure does look progressive, doesn’t it?

in fact, people grossing below 25k actually have a negative tax bill — they receive a refund.

surprise

but what if i told you this table represented a flat tax rate of 40% for all individuals, combined with a 10,000$ refundable tax credit. (“refundable” means that you get the difference back as a refund if it’s greater than your amount owed in taxes.)

you can easily verify this. for instance, 40% of 80k is 32,000$. now subtract that tax credit for a total of 22,000$. now subtract 22,000$ from the gross of 80,000$ and you get 58,000$.

best of both worlds

what this example illustrates is the distinction between a true flat tax and a marginal flat tax and a marginally flat tax. our tax system described above isn’t truly flat, because the effective rates are indeed progressive. but it is marginally flat, because each additional dollars of earnings pays a flat rate. this structure gives us the benefits of flat taxes, such as administrative simplicity and minimal deadweight loss, while also retaining the social aim of reducing inequality.

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Clay Shentrup

advocate of score voting and approval voting. software engineer.