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• ##### OK, I'll simplify it even more.(5+ / 0-)
Recommended by:
Robobagpiper, ferg, Pluto, fumie, terrypinder

Let's suppose that there were only 2 tax brackets:

10% for taxable income up to \$100,000
20% for taxable income above \$100,000

1. If your taxable income was \$50,000, you'd pay \$5,000
0.1 x 50,000 = 5,000

2. If your taxable income was \$100,000, you'd pay \$10,000
0.1 x 100,000 = 10,000

3. If your taxable income was \$150,000, you'd pay \$20,000
0.1 x 100,000 = 10,000
0.2 x 50,000 = 10,000
10,000 + 10,000 = 20,000

4. If your taxable income was \$200,000, you'd pay \$30,000
0.1 x 100,000 = 10,000
0.2 x 100,000 = 20,000
10,000 + 20,000 = 30,000

Those who don't understand this THINK that they'd be paying \$30,000 in case #3 (instead of \$20,000), and \$40,000 in case #4 (instead of \$30,000). They'd be off by \$10,000 in both cases.

Worse, they THINK that if they made \$100,000 this year (paying \$10,000), that if they make \$100,001 next year they'd be paying double that (\$20,000), when in reality they'd be paying just \$0.05 more.

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