How the Marginal Tax Rate Works

Let’s look at two taxpayers, you and Elon Musk.

For the first $50,000 of income, each of you would pay the same percentage, say 8%. Total, $4,000 from each of you.

Then Elon and you would pay a higher percentage—maybe 15%—of the next $500,000 or so. Another $67,500 apiece, leaving you with a net income of $478,500. Not bad.

If you had income higher than that, then you’d pay an even higher percentage of the next part—say, 25% for the next $5 million. That’s right: earn $5 million, pay $1.25 million in taxes. So if your gross income was that first $50 thousand, plus the next half a million and the final $5 million, it would come to $5,550,000. Your total taxes: $1,321,500. Net income: $4,228,500, which is still a nice piece of change—a little over $80,000 per week!

And by the time you get to $100 million, or $1 billion, a marginal tax rate of 50%, 75%, or 90% would be applied. So say your investments “earn” a billion a year in income, you’d pay a marginal rate of 90% on most of it. In other words: Total Gross income: $1,005,550,000. Total taxes: $901,321,500. Take-home pay: $104,228,500.

That’s right: if you’re lucky enough to generate, say, $1 billion in a year, you could only keep a hundred and four million of it. Now it seems to me, if you can’t live a very good life on a hundred million bucks a year, or $2 MILLION A WEEK, don’t look at me for sympathy!