[Sources of information for this post:

CPI Calculator: Bureau of Labor Statistics

Historical Tax Rate: The Tax Foundation

Explanation of Tax Rate: The Money Chimp]

I am fascinated by marginal tax rates from a historical perspective. (All of you who were not already convinced that I am a geek… I am a geek.)

I’m fascinated by marginal tax rates in general. I’m also fascinated by what I perceive as a general lack of understanding in our society of those things, why so few people understand them, and what kind of paradigm shift it would take to have more people understand them.

First, I think it is important to understand the difference between marginal tax rate and average (or actual) tax rate. Marginal tax rate is the rate you pay on the last dollar you earned. But we because we have a tiered or graduated tax rate, you don’t pay that rate for every dollar you earn. From The Money Chimp:

To take an example, suppose your taxable income (after deductions and exemptions) was exactly $100,000 in 2008 and your status was Married filing separately; then your tax would be calculated like this:

($ 8,025 minus 0) x .10 : $ 802.50 (Me – This is the amount you pay on the first $8,025 you make.)

(32,550 minus 8,025 ) x .15 : 3,678.75 (Me – This is the amount you pay up to $32,550.)

(65,725 minus 32,550 ) x .25 : 8,293.75 (Me – you get the idea…)

(100,000 minus 65,725 ) x .28 : 9,597.00

Total: $ 22,372.00

This puts you in the 28% tax bracket, since that’s the highest rate applied to any of your income; but as a percentage of the whole $100,000, your tax is about 22.37%.

So… first, I think that’s a really important thing to understand. If you make $100,000, and you are married filing jointly, your tax bracket (your marginal tax rate) is 28%, but your actual (average) tax rate is 22%. (And according to another tax calculator, if you have two kids and are married filing separately (and really – file jointly, already) your average tax rate is more like 17.4%. A marginal tax rate – a tax bracket system – means you only pay that percentage for the amount your income is in that bracket. To wit – If your income is one dollar into the highest bracket, you only pay the highest rate on that one dollar.

It’s important to understand that for the next part.

It’s also really interesting to take a look the history of tax rates in this country. If you listened to the rhetoric right now, you’d think taxes were incredibly high in the US, when actually, they are the lowest they have been since 1931 – when Roosevelt raised taxes as part of a Keynesian plan to get us out of the Great Depression. To get a sense of the history of tax rates in this country, take a look at the history of the top of the income tax bracket over the past hundred years. It is incredible to imagine that as recently as 1963, the top tax rate in this country was 91%. Yes, in 1963, a married couple had to pay 91% of their earnings to the government for every dollar in salary over (2011 adjusted dollars) $1,439,000. Think about that one.

So let’s take a closer look at marginal tax rates across a specific moment in time. Let’s look at the tax brackets and tax rates from just after Ronald Reagan’s historic tax cuts of 1981 as compared to today.

Amount of the tax bracket for married filing jointly in 1982.

Rate	Amount (1981 $)	Amount (2009 $)
12%	$3,400	$7,759
14%	$5,500	$12,551
16%	$7,600	$17,343
19%	$11,900	$27,157
22%	$16,000	$36,513
25%	$20,200	$46,098
29%	$24,600	$56,139
33%	$29,900	$68,234
39%	$35,200	$80,330
44%	$45,800	$104,520
49%	$60,000	$136,926
50%	$85,600	$195,348

Amounts of the tax brackets for married filing jointly in 2011

Rate	Amount
10%	0
15%	17,000
25%	$69,000
28%	$139,350
33%	$212,300
35%	$379,000

So… most Americans are paying much, much less in federal taxes than they were in 1982 under Reagan. And this is happening at a time where state, federal and local governments are all trying to figure out what essential services they can no longer offer. It is happening at a time when governors are calling for changes to state law to take away contractual benefits to state workers. And this is happening at a time when many states are calling for state-level layoffs and pension and contract give backs at the same time as states are raising the minimum estate value before you have to pay an estate tax.

As we, as voters and citizens, try to make our voices heard… try to figure out what we believe and what party (and candidate) match up most closely with our own beliefs, is it important that we understand both the math and the history of taxation in this country?

If the answer is yes — and for me it very much is — do we teach math or social studies as a nation in a way that would lead us to believe that our citizens are getting the transferrable skills – in math, in social science, with the ability to ask good questions and find out answers – in school? If not, why? What are we teaching instead?

At root, this would require us to teach students every subject through the lens of what it would take to help our students become fully realized, full equipped citizens of their world.

As soon as I really committed to thinking about what it would mean to change American education such that citizenship, not workforce development, was our goal, math got put straight into the crosshairs of what we really get wrong.Every American has an obligation to understand the taxes they pay. It’s fundamental stuff to being an informed citizen. And very, very little of the way we teach in American schools would suggest kids are getting the skills and thoughtfulness to navigate the thoughtful process of being a citizen in and of the modern world.