* Dan Minette ([EMAIL PROTECTED]) wrote: > But, wouldn't that just be a slope change....dFIT/DE = .15 to dFIT/DE > = .25? If so, then as long as I'm using the right marginal rate, then > I'm calculating the Federal Income Tax (FIT) contribution to T and dT > correctly.
Sure, I was pointing out that you might NOT be using the right marginal rate. You said you chose 15% initially (although I see you using 25% below). If Kotlikoff's and Gokhale's assumptions about the additional income are different than yours or they are calculating with a different year tax laws, the marginal rate could easily be different. This is one thing I am looking to clarify in their calculation. > True, but I just checked California. Assuming just the standard > deduction, the tax rates for a married couple who takes the standard > deduction in California is (roughly): Okay, let's make this a bit easier. Massachusetts has a flat tax of 5.3%. (There are other states where it could be even higher, so it is not like I picked the outlier here) Let's use Massachusetts, okay? http://www.taxfoundation.org/individualincometaxrates.html > > For my example, dR/dE between 39k and 40k, they'd be in the 4% > bracket. But, since state income tax is deductable, and the > dFIT/dE=0.25 (25% tax I think you are assuming that this couple will be itemizing their deductions. Did you check to see if they really would be better itemizing than taking the standard deduction? > Also, if one does this, it should be added to the income as well as the > tax. That's not critical when the rest of dR/dT is low, but as it gets > high, its important. Let us consider the example where the marginal net > tax rate calculated without considering employer paid tax on income as > either income or tax is 75%. Let us then consider a 7.7% tax being added > to this. The result is (.75+.077)/(1+.077)=.77=77%. Since they were > talking about net tax rates around 80%, this gives some idea of how the two > ways of calculating the tax would change the answer. It's only another 2%. That is debatable -- I can see it going either way. It all depends on how you define income. If Kotlikoff was talking about pre-tax income where pre-tax REALLY means before ALL tax, then you don't add that to the denominator. You are defining the $20K income in a certain way (after some taxes), but it is not the only reasonable way. Anyway, rather than arguing about definitions, I propose we take what I think is the simplest definition: the income we will discuss in our calculation is before ALL taxes. So, if we say someone has a $20K income, then we mean that in a zero tax world, their income would be $20K. After taxes, their income would be much less than $20K. If we do this, it may be that we will be calculating for a lower income family than you had initially assumed. > But, for income that is already in the 20k range, we shouldn't be > talking about much in the way of Mediaid or welfare benefits. Take But, why do you make this assumption? The tax law looks very complicated to me in this regard. Have you studied it carefully? Kotlikoff specifically mentions Medicaid and housing assistance (in addition to food stamps and EITC that you already included), so I'd bet it can be significant at certain income levels. Again, it depends on the income assumptions, obviously. If the family being examined is lower-income than you are assuming, then more of these benefits could become important. If you have already carefully studied this, then I'd certainly like to see your notes or references showing what benefits such a family does and does not receive at what income levels. If you don't know, then I'll just have to continue my reading, and I will post my notes on it eventually. > Also, if anyone else can think of federal benefits that go away when family > income rises from 20k/year to 40k/year, I'd be interested in seeing some > numbers. If you don't have the inclination to do the numbers, just mention > it and I'll see what I can do. If you have a ready reference, how about checking on Medicaid and housing assistance? -- Erik Reuter http://www.erikreuter.net/ _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
