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August 14, 2012

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Paul C

I think the "effective tax rate" as you describe in your post is different from what most people would actually think of as their actual overall tax rate. If that person was to say what their income is they would say $60,000, not the $50,650 that is their taxable income. That would give an overall rate of 14.74%. I'm not saying that the given 17.46% effective rate or that the definition is incorrect, just that people don't usually think of taxable income as the amount of their income. I think that is understandable since taxable income is just a construct of the tax return used in the return to determine tax. It really has nothing to do with what people actually receive as income. For example, there could be two people, each with that $60k annual income and one of them has substantially more deductions which reduce their taxable income to less that the other who takes the standard deduction. Both of them would say they make $60k, which would be their total income on the return, barring other items. For purposes of understanding what actual overall rate they pay, I think people should focus on the rate of total tax/total income to have the better understanding of what they are paying.

Trish

Paul
You make a good point. In a post a couple of years ago, I called it the "real world tax rate." And I agree that taxpayers need to know it too. But with the media and politicians tossing out "marginal" and "effective" I wanted to give readers an understanding of those terms.

Paul C

Absolutely, I agree, people should be knowledgeable of what those terms mean so they can better understand the discussion of the issues, as well as understand the limitations of what the terms mean.

shane Knight

I completely agreed on this with you everyone has to maintain the details at there end at the time of declaration there will be no hassle it can be produce to media an politicians

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    A reader should seek advice from an independent tax adviser with respect to the information on this blog based on the reader’s particular circumstances. This advice is intended to be general information and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS regarding the transaction or matters discussed here.
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