*It is all very well and fine to talk about tax rates for someone making $300,000 a year. But what about the vast majority of Americans?*

Tax rates are an odd thing, and most of us have little or no idea what they are. You can probably tell me how many miles per gallon you are getting, how many airline miles you have, or what Yogi Berra's all-time batting average was. But chances are, you have no idea what tax bracket you are in, even if you are pretty astute with finances or math - or like to think you are (and we all do, right?).

The problem is, the brackets and rates change regularly. And most news programs, fearful of "turning away" viewers, talk about taxes in only the broadest terms - without mentioning nasty things like "numbers" which make viewers change the channel. So instead, they have guests shout slogans at each other and expect you to feel enlightened in the matter.

But as I noted in my Progressive Tax posting, and as illustrated in this tax rate site, there are a number of important break points in the tax rates that are smack dab in the middle-class income range.

For the sake of illustration, let's use the "Married, filing jointly" rates. You could use other rates, and there are some minor effects, but the net result is the same.

**The first break point is at $68,000.**If your income is at or below this level, you are taxed at 15% for Federal Income tax. Money made above that level is taxed at higher rates, 25% or above. The jump between 15% and 25% is the largest single jump in the tax rates, and it is right in the middle of what is middle-class income. So you can see, that if you make $68,000 a year, your taxes will nominally be $10,200 (there are lots of deductions, exemptions, etc, but for the sake of illustration, we will talk the gross calculation here).

If your income goes above this, the difference is taxed at 25%. So, for example, if you make $75,000 a year, instead of paying 15% on all of it ($11,250) you pay more - $12,700 to be exact. So there is a disincentive, to some extent, toward working more - accepting that overtime pay - if it means you will be bumped into the next bracket. Time-and-a-half may be fine and all, but with the increased taxes, it may end up being closer to your regular hourly rate.

Now also note that for people making $68,000 and under (or thereabouts) the benefit of deductions is less. Since you only get 15% back for each deduction, it is not as lucrative an incentive as to someone in the 25% or 35% brackets.

But note I said "or thereabouts". You see, if you make $78,000 and are in the 25% bracket, but pay $10,000 in mortgage interest and/or 401(k) contributions, this reduces your income to $68,0000, effectively lowering you back into the 15% bracket. So even though you are in the 15% bracket, it was that deduction that put you back there, effectively saving you 25% of the deduction amount, if you did not have those deductions.

So you see, the calculations already are complicated.

**The second break point is at $108,600**, and this is a good break point. When your income rises above this, your no longer pay Social Security tax, so you end up having an effective lower rate.

For example, suppose you make $100,000 a year, after deductions (so-called "adjusted income). You pay 15% tax on the first $68,000 ($10,200) plus 25% tax on the $32,000 ($8000) for a total of $18,200.

In addition, you pay $6200 in Social Security taxes for a total of $24,400.

Now let's say you make $125,000 a year (adjusted income). You pay the same 15% tax on the first $68,000 ($10,200) plus 25% tax on the $57,000 ($14,250) for a total of $24,450.

But, you only pay 6.2% Social Security tax on the first $108,600, or $6733.20. If you paid this tax on ALL of your income, it would be $7,750. So overall you pay $31,183.20 in Income and Social Security taxes.

Now if you do the math, the first person making $100,000 a year is paying about 24.45% in combined taxes, whereas the second person is paying about 24.95% in combined taxes -even though, with marginal rates, the second guy should be paying a lot more. The cutoff in Social Security tax ends up saving him 6.2% on his marginal income above $108,600.

Now again, it is hard to make these calculations exactly, as adjusted income and gross income are different things, and some taxes are calculated on gross, and others on net, so it all depends on your deductions and other dodges. And this is one reason why figuring out taxes in an easy manner is so hard to do. You end up having to crank all these numbers and the results can be odd or unexpected.

**The third break point is at $137,300**. Above this, the marginal rate goes up to 28%. Not much of a jump, to be sure - certainly not like the jump between 15% and 25%. And the rates go up from there to 33% and 35%, in much higher income break points ($209,250 and $373,650, respectively). And guess where the "Bush Era Tax Cuts" kick in? those top four brackets - 25-35%.

So it is indeed odd that an average "Joe Paycheck" making, say, $75,000 a year gross, who is clearly going to be in the 15% bracket, would argue that the "Bush Era Tax cuts" cut his taxes at all, or that repealing them would "increase his taxes" by any amount.

But like I said, can you name ONE NEWS SHOW that has cranked these numbers at all or displayed them on a screen? TeeVee watchers don't like numbers - they scare viewers, who are basically math illiterate, and cause people to change the channel. They'd rather hear happy talk than think about their finances in real term or confront their own financial misdeeds (like spending more than they make, an epidemic in America during the last decade, when our savings rate actually went

*negative*).

But as you can see, it really isn't all that hard to figure out - the numbers are there, available for anyone to see, if you bother to look for them...

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