When $250,000 Equals $315,000

By DAVID LEONHARDT

We’ve heard from several readers who wanted to know how much money households with $250,000 a year in adjusted gross income — that is, those who would have been affected by the Democrats’ original proposal on the Bush tax cuts — actually make. The answer seems to be about $315,000 a year.

Some background: President Obama and other Democrats originally proposed the expiration of the Bush tax cuts on income above $250,000 a year. With the Republicans taking over the House, the Democrats retreated from that proposal and agreed to extend all the Bush tax cuts for two years. But Democrats say they still want to see these high-end cuts expire in 2012.

There are two aspects of the high-end cuts that often get lost in the public discussion. The first is households with more than $250,000 a year in adjusted gross income would still get a tax cut — on their first $250,000 of such income. On average, this tax cut would equal about $6,500 a year, regardless of whether a household had $250,000 in adjusted gross income or $1 million (or much more) in adjusted gross income. If all the Bush tax cuts are extended, by contrast, households making at least $1 million a year would receive an average annual tax cut of $104,000.

The second issue is that earning $250,000 in adjustable gross income is different from earning $250,000 in total income. High-income households tend to take a significant number of deductions. At our request, Roberton Williams at the Tax Policy Center analyzed the total income of households with $240,000 to $260,000 a year in adjusted gross income. On average, they made $315,000 in adjusted gross income, including $32,000 in capital gains and dividends.

So when you hear talk about taxes on people makes at least $250,000 a year, it really tends to means taxes on income above $315,000 a year.

http://economix.blogs.nytimes.com/2010/12/17/when-250000-equals-315000/