A short update to the post I had about tax rates a couple days ago: when calculating our tax rate compared to Romney’s, I was unsure if the 13.9% rate was based on Adjusted Gross Income (AGI), or on total income. Turns out it was AGI; if you use gross income, it would be a 10.7% rate, and he paid 17.6% of his taxable income in taxes. For us, the rates are as follows:
| Romney | Chez Nous | |
| Gross Income | 10.7% | 16.5% |
| Adjusted Gross Income (AGI) | 13.9% | 19.0% |
| Taxable Income | 17.6% | 24.9% |
In addition, for Gross Income, I’m including all income, even money that was deducted from our taxes for retirement savings, because we pay FICA taxes on that amount.
All in all, the discrepancy is even more obvious. More importantly, though, is how this shows the myriad number of ways to calculate tax rates: the myth that 47% of people “pay no taxes” exemplified that well. I think the most honest, most intuitive calculation is the one on gross income: of all the money I take home, how much do I pay in taxes? I don’t like AGI or taxable income, because that leaves out huge details that matter. Say two (purely hypothetical) families make $100,000 a year, but one family pays $6,000 on $60,000 in taxable income, while the other pays $3,000 on $30,000 in taxable income. They both paid the same 10% rate on taxable income, but one family paid twice as much in real dollars as the other. That’s certainly not the same rate or the same treatment, and it begs the question of why the disparity in taxable income.
If we are to have an honest debate on the complexity of the tax code and the deductions out there that can result in drastically different tax rates for the same income, using easy-to-understand comparisons is required.