The tax increase doesn't apply to the whole salary, just the amount above $400,000 and if you don't understand how marginal tax brackets work, then you were never gonna make $400,000 a year.
— Fifty Shades of Whey (@davenewworld_2) October 23, 2020
Half claim and half opinion, the tweet was published on October 23 2020 and said:
The tax increase doesn’t apply to the whole salary, just the amount above $400,000 and if you don’t understand how marginal tax brackets work, then you were never gonna make $400,000 a year.
Biden’s Tax Plan in Previous Fact Checks
A precise figure of $400,000 a year was an indicator that this was a reference to then-presidential candidate Joe Biden’s tax proposals, prior to his November 2020 election. At around the same time we examined a separate circulating social media post mischaracterizing Biden’s tax proposals, which was falsely attributed to financial pundit Dave Ramsey.
In December 2020 (post-election) we once again looked at Biden’s tax platform, or more specifically, we dug into stories framing taxes on the very wealthy as disastrous for the middle class. Out-of-context fears about Biden taxing the middle class were once again the issue to hand in an April 20 2021 fact check purportedly contrasting Donald Trump’s with President Joe Biden’s tax plans:
Why $400,000 Keeps Coming Up
In our April 20 2021 page, we explained in part:
The meme’s claim that Biden intended to increase “income and payroll taxes” to 52 percent (versus Trump’s purported 37 percent) was examined separately by Reuters in March 2021. In a fact-check (“Fact Check-Biden is not proposing a 52% income tax rate for anyone earning above $29,000”), Reuters explained that “Biden’s tax plans include an increase to the top income tax rate for taxable incomes above $400,000 per year from 37% to 39.6%,” adding a key piece of context — the tax rate increase from 37 percent (cited in the meme) a) only applied to incomes over $400,000, and b) was proposed at a rate of 39.6 percent. Reuters further noted that “a 52.0% tax on income would only apply to those in the highest tax band as they would pay both sides of this payroll tax,” explaining the combination of two separate taxes in the meme.
As noted in our prior fact-checks and consistently in news about Biden’s tax plan, anyone earning less than $400,000 a year “won’t see ‘one single penny’ in additional federal taxes.”
In the course of that page, we referenced the $400,000 threshold — a figure frequently left out of memes claiming tat Biden’s tax plan would indiscriminately raise taxes. We also explained that only 1.8 percent of all taxpayers take home $400,000 a year or more.
‘The Tax Increase Doesn’t Apply to the Whole Salary, Just the Amount Above $400,000,’ and Marginal Tax Brackets
The Imgur post and tweet began with a claim that the tax increase proposed by Biden didn’t apply to the whole salary, “just the amount above $400,000.”
Subsequently, the tweet went on to say that “if you don’t understand how marginal tax brackets work, then you were never gonna make $400,000 a year.” That created a two-level claim — one being that people earning $400,000 or more would only be taxed additionally on their earnings over $400,000, and the other being a generality about “marginal tax brackets.”
Forbes published a “Biden Tax Calculator,” to illustrate how taxes might change across different salary levels. We plugged $399,999 in due to the cited $400,000 threshold, and the calculator indicated that the putative $399,999 wage earner’s estimated federal taxes would remain the same as they did under Trump.
To further test the tweet’s theory, we tried a salary of $415,000 for a single wage-earner. The calculator returned the following result:
In that test example, the person earning $415,000 would pay $115,705 in federal taxes under the existing tax plan and during Trump’s presidency. Under Biden, that figure would increase by $119.60, for a total payment of $115,824.60 ($9.96 a month), at an increase of o.1 percent in federal taxes. We upped the test salary to $490,000 and received this result:
Under Biden’s proposed tax increases, the $490,000 wage earner would pay $145,525.60 a year in taxes; under Trump, their federal taxes were $3,569.60 lower at $141,955. The increase in federal taxes amounted to 2.5 percent of the total amount of federal taxes, and it was .7 percent of the total $490,000 salary.
Finally, we attempted to find increases at $401,000, $405,000, and $410,000. Increases did not kick in until $415,000, with the additional $119.60 a year.
Marginal Tax Brackets and How They Factor Into Tax Worries
Investopedia’s page on marginal tax rates (current as of April 16 2021) provided a concise but thorough explanation of the tweet’s basic claim:
The marginal tax rate is the tax rate you pay on an additional dollar of income. In the United States, the federal marginal tax rate for individuals increases as income rises. This method of taxation, known as progressive taxation, aims to tax individuals based upon their earnings, with low-income earners being taxed at a lower rate than higher-income earners.
Understanding Marginal Tax Rate
Under a marginal tax rate, taxpayers are most often divided into tax brackets or ranges, which determine the rate applied to the taxable income of the tax filer. As income increases, what is earned will be taxed at a higher rate than the first dollar earned. In other words, the first dollar earned will be taxed at the rate for the lowest tax bracket, the last dollar earned will be taxed at the rate of the highest bracket for that total income, and all the money in between is taxed at the rate for the range into which it falls.
Taxes are often confusing, and the concept of marginal tax rates is no different. However, put plainly, taxes increased over any given threshold. In the case of the $400,000 wage earner and the $415,000 wage earner, there was either no increase or a $119.60 increase respectively; the person earning the additional $15,000 a year was only taxed $119.60 more than the $400,000 wage earner.
An October 2020 tweet shared to Imgur claimed that Biden’s proposed tax increase “doesn’t apply to the whole salary, just the amount above $400,000,” which is true. The tweet cited marginal tax rates as the cause, which was also true. All of the linked tax-related fact-checks we included in some way neglected to factor in marginal tax rates, and often wildly mischaracterized Biden’s proposals. Biden has stated that anyone earning under $400,000 or less “will not pay a penny more” in federal taxes, and thus far, estimates have validated the claim as true.