What are Marginal Tax Rates?
In my stump speech, I point out that South Carolina's top marginal tax rate starts at $15,400, but what does that mean? In our progressive tax structure, the more income you make, the higher your tax bill becomes. Each time you move up a tax bracket, you pay a higher percentage on the money you make in that tax bracket. The state doesn't go back and tax your previous earnings all at the same rate, you just pay more as you go along.
So let's take an example of someone making $10 an hour, working 40 hours a week for 50 weeks. That's $20,000 in earnings, and that person can make a standard deduction of $12,000. This means they only owe taxes on $8,000. For the next section, I've rounded off the numbers for ease of understanding.
For the first $3000, this taxpayer owes nothing extra. For the next $3000, they would pay 3%, which is $90. For the next $2000, they would pay 4%, which is $80. That's a total of $170, plus another $90 fee for filing in this bracket... because reasons. So they end up paying $260, or 1.3% of their total income.
Let's take another example and triple the wage. For $60,000, minus the standard deduction you get a taxable income of $48,000. They get the same freebie on their first $3000 and $90 on the next $3000. They pay $120 on the next $3000, $150 on the next, $180 on the next. Everything past that is taxed at the same rate of 7% for another $1680. That's a total of $2,220 in taxes and $1232 of those "reasons" fees for a total of $3452 or 5.8%.
Some people are going to look at that and scream that it's unfair that one person paid 1.3% and the other paid 5.8%. What they're ignoring is that the person paying more, still has almost three times the amount of money after taxes. That's money where they can keep up with all their bills, while the first example is deciding which bills take priority. The second person can just set everything up on autopay and never think about again, where the first is unscrewing light bulbs and hoping extra blankets will keep them from getting ill because they can't afford to heat the whole apartment. People are going to scoff at these examples, but they're literal examples from my adult life.