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Why Taxes Make You Feel Empty

The IRS published the tax brackets for 2022 here [1]. The tax brackets are important because they tell you how tax burden is calculated. If you've never calculated your taxes, then understand that you are taxed on a marginal bracket schedule.

If you are married and a joint filer, then the schedule starts with $20,550, and has steps at $83,550, $178,150, $340,100, $431,900, and $647,850. Each bracket is a bucket of burden where the tax rate changes from 12%, to 22%, to 24%, then 32%, 35%, and finally 37%. As you fill buckets your marginal tax rate changes. This complexity is why tax accountants make bank throughout the year. Or not ...

Inline is an image that is the graph of the marginal rate by income. It's the gray line that is scaled according to the right hand side axis. It's also the only line always increasing. Your taxes are always increasing, no matter how much you make. That's the start of the misery.

The hyperbolic-like lines are the relative changes of income and tax burden. The orange line, or the lowest level, is the relative change in income (in $5k increments as a percent). That's a depressing line, and it is always decreasing.

The other line, which is blue and just above the lowest hyperbolic line, is the percent change in the marginal tax burden per $5k increase in income. Look at that line and understand what it is telling you.

At $100k and $280k there are large inflections because the congress thinks that these milestones are easy to tax. The congressional people are way out there in the $600k range, so they don't feel much pain. 

What is important to note is that every time you get a pay raise, your relative increase in marginal tax is higher than your wage increase. That's the reason why it always feels like you're paying more in taxes despite getting more wage. 

The optimal salary for a married joint-filing couple is $280k or $610k. The absolute worst is getting $281k or $611k. When you get a salary that is just above the marginal bracket then you feel the change in tax the most. 

Take a hard look at the marginal rate too. All of the double-speak about the "wealthiest paying their share" of tax is a huge crock of nonsense. The marginal rate of 35% doesn't kick in until you're making $3,325,000. By the time you're making $880k per year your marginal tax rate change per $5k is less than 0.1%, which doesn't feel like anything.

The only people who are getting taxed to death are those making less than $280k per year, and those who are just at the $285k - $300k per year jump. Anyone making more than $610k per year is feeling pretty good and mostly immune to any tax policy.

[1] https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022

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