Nerd challenge: Estimate the "midpoint" of the highest tax bracket

[naomi 343]

Married filing jointly-

The highest-income tax bracket for 2021/22 is

$628,300 or more

It's easy to find the midpoint of the lower brackets because the maximum figures are known.  How would you bring in other information to roughly estimate the "midpoint" of this one?

 

[naomi 343]

Someone who used to work for the Fed Reserve found this tricky enough to skip, in the interest of time (at the time). The ask is for a rough but sensible estimate.

[Thornton Melon 542]

Are you asking for the midpoint between 628,300 and infinity? Just subtract 628,300 from infinity, divide the result by 2, and add that result to 628,300. Piece of cake....

[nobody 2,032]

Is the intent to work out how much tax is being paid by the highest earners?

If so, that will be quite a problem since the midpoint will probably be skewed by the highest earners and then they find ways around paying taxes through offsetting investment costs, depreciation, etc.

I suppose you could assume Elon's stock options make him the highest earner in the world and use that as a max, but I don't think that number is very useful.  Let's say he paid taxes on about 30 billion or so, that would put the midpoint around 15B, but the bracket is probably dominated by people making 1M-10M per year.

In any case, your motivation behind the question is helpful to tailor the answer.

[Horseman 1,513]

44 minutes ago, naomi said:

Married filing jointly-

The highest-income tax bracket for 2021/22 is

$628,300 or more

It's easy to find the midpoint of the lower brackets because the maximum figures are known.  How would you bring in other information to roughly estimate the "midpoint" of this one?

 

In classroom statistics you would assume a similar width as the others for an open boundary, however, in real world statistics this open boundary is very large.  You'd want to do a best guess, statistically speaking. But here is some data to help.  The top 1% make an income of > 500K.  The top 500 make > 120M.  The top 10 > 1.0B.  85% of any group makes between 1x to 2.5x the minimum.

So for a good guess statistically speaking I'd use the top bracket at 5B for calculating a mid-point.  If you wanted an average you could run out the numbers based on what I gave above.

Good luck.

P.S. Of course there are tax laws and loopholes where these top tier people never pay tax on their total income.  That's not taken into account.  Bill Gates is estimated at 4B (very close to our maximum guess) while Elon Musk is $1.00. 

[naomi 343]

20 hours ago, nobody said:

Is the intent to work out how much tax is being paid by the highest earners?

If so, that will be quite a problem since the midpoint will probably be skewed by the highest earners and then they find ways around paying taxes through offsetting investment costs, depreciation, etc.

I suppose you could assume Elon's stock options make him the highest earner in the world and use that as a max, but I don't think that number is very useful.  Let's say he paid taxes on about 30 billion or so, that would put the midpoint around 15B, but the bracket is probably dominated by people making 1M-10M per year.

In any case, your motivation behind the question is helpful to tailor the answer.

The intent is to be able to say:

If you make x (default to closest of the bracket midpoints), and income taxation was transitioned to consumption tax at a rate which would balance the budget, your income would increase by y, and you would pay z per year in consumption tax. 

The latter part of that is figured through the BLS Consumer Expenditure Survey and income dectiles.

The person who started figuring out what y and z is decided to use midpoints of the brackets, because averages are hard to come by.

He used $2M as the midpoint for the highest bracket but didn't have much thinking involved with that.

*An interesting aspect of this is that truly balancing the budget (fed and states) is in mind, not revenue neutrality.

[nobody 2,032]

Yeah, just pick a number.  $2M is as good as any.

The other thing I would do is plot y from 628k to say 10M just to see if there is a non-linearity.  

I assume the takeaway here is going to be a consumption tax would unfairly hit the poor.  A curve showing that y increases and z decays in percentage of income the richer you get would probably be useful (if you want to send that message)

[Bert 1,087]

1 hour ago, naomi said:

The intent is to be able to say:

If you make x (default to closest of the bracket midpoints), and income taxation was transitioned to consumption tax at a rate which would balance the budget, your income would increase by y, and you would pay z per year in consumption tax. 

The latter part of that is figured through the BLS Consumer Expenditure Survey and income dectiles.

The person who started figuring out what y and z is decided to use midpoints of the brackets, because averages are hard to come by.

He used $2M as the midpoint for the highest bracket but didn't have much thinking involved with that.

*An interesting aspect of this is that truly balancing the budget (fed and states) is in mind, not revenue neutrali

Why even calculate it?  The consumption tax is a non starter as the middle class will pay way more in consumption tax then they currently do in income tax.  You can't deduct kids, mortgages, property and state taxes from a consumption tax.

[nobody 2,032]

17 minutes ago, Bert said:

Why even calculate it?  The consumption tax is a non starter as the middle class will pay way more in consumption tax then they currently do in income tax.  You can't deduct kids, mortgages, property and state taxes from a consumption tax.

This is probably some school project or research paper for her job.  It's not meant to be a policy starter.  It might be one of those studies someone cites that the world is ending if we do this or that.

[naomi 343]

It's anticipated that it will look ugly.  Eliminating government is another (huge) side of things, so the consumption tax rate needed to balance the budget would decrease as privatization increases.

eta: Also, groceries will be exempted from the tax.

[Bert 1,087]

4 hours ago, naomi said:

It's anticipated that it will look ugly.  Eliminating government is another (huge) side of things, so the consumption tax rate needed to balance the budget would decrease as privatization increases.

eta: Also, groceries will be exempted from the tax.

You won't eliminate the government.  What is included in groceries?  Candy? Cookies? Wine? Potato Chips? Ice Cream? Frozen Pizza? Birthday Cakes? Donuts?  Foie Gras? Escargots? 

States are still trying to figure out if a cookie base covered in caramel and chocolate is a cookie or a candy bar. 

[naomi 343]

On 6/16/2022 at 7:47 PM, Bert said:

You won't eliminate the government.  What is included in groceries?  Candy? Cookies? Wine? Potato Chips? Ice Cream? Frozen Pizza? Birthday Cakes? Donuts?  Foie Gras? Escargots? 

States are still trying to figure out if a cookie base covered in caramel and chocolate is a cookie or a candy bar. 

Well...it's certainly not a run of the mill vision motivating this cursory digging. Anyone with an ounce of practical thinking would naturally be  with the project.

That is a bridge that will need to be crossed. So far we're comfortable with what the BLS Consumer Expenditure Survey considers "food at home."

[Bert 1,087]

20 hours ago, naomi said:

Well...it's certainly not a run of the mill vision motivating this cursory digging. Anyone with an ounce of practical thinking would naturally be  with the project.

That is a bridge that will need to be crossed. So far we're comfortable with what the BLS Consumer Expenditure Survey considers "food at home."

Sounds like another money wasting flawed government study.  Just like the study that determine how much the abortion called Obama care would cost and the results it would deliver. 

[Hardcore troubadour 12,595]

On 6/16/2022 at 10:47 PM, Bert said:

You won't eliminate the government.  What is included in groceries?  Candy? Cookies? Wine? Potato Chips? Ice Cream? Frozen Pizza? Birthday Cakes? Donuts?  Foie Gras? Escargots? 

States are still trying to figure out if a cookie base covered in caramel and chocolate is a cookie or a candy bar. 

Depends on your lobbyist. 

[Bert 1,087]

22 minutes ago, Hardcore troubadour said:

Depends on your lobbyist. 

More importantly the politics of your state 

[naomi 343]

On 7/1/2022 at 8:53 AM, Bert said:

Sounds like another money wasting flawed government study.  Just like the study that determine how much the abortion called Obama care would cost and the results it would deliver. 

It's actually for a John Galt type (I don't work for the gov). It's slowly evolving into a more thoughtful research project. 

[BunnysBastatrds 1,911]

 Ten year a year a year census failure