Think Like a Family

President Obama’s current appeals to fairness — as in the wealthy paying their “fair share” and letting ordinary Americans have a “fair shot” at a middle class life — will likely do more harm than good for those of us who care about economic equality. A Gallup poll conducted in mid-December reports that 58% of Americans polled say that they do not see society divided into “haves” and “have nots” despite Occupy Wall Street’s efforts to highlight growing economic inequality. The references to fairness appear to be the Democrats’ attempt to capitalize on the rhethoric of the 99%, a tactic they should seriously reconsider as it will likely backfire with serious consequences to our nation.

Fairness is inevitably in the eyes of the beholder. In the President’s stump speeches, “fair” seems intentionally ambiguous, a political Rorschach inkblot test to align people behind broad political assumptions than an actual signal of agreement about what would create a level playing field in a today’s economy. The rhetoric of fairness divides people into beneficiaries of unjust policies or victims of them, without delving deeper into what actually unites and benefits everyone.

If the President and the Democrats actually want a more equitable distribution of wealth, then they should pretend they are managing a household or large family, rather than running a business. The responsibility of managing a family household includes more than just making sure that there is money to pay expenses. It also means caring for everyone in it with whatever resources you do have. It requires us to distribute and share our household’s resources in a way that makes it possible for the needs of individual members as well as the needs of the whole household to be met. The balance between the needs of individuals and the whole is necessary, because how we distribute the family’s resources has direct impact on the quality of how we relate to each other. Competition makes for tense family relations. Similarly, in a family it is hard to imagine tolerating a situation where some family members suffer without basic needs being met while others have plenty. When we live under the same roof, it is clear that our own wellbeing is intimately connected to the wellbeing of everyone else in household.

This dynamic of being interconnected and interdependent needs to drive political discourse and policy as well. Economic policies organize relationships between people in society. When we distribute resources — whether food, electricity or Social Security benefits — we create relationships between people.  The ways in which both private wealth and public goods are distributed translate into the neighbors we have, the local businesses available in our neighborhoods and the quality of the schools our kids attend. In the academic world, economics may be about the distribution of scarce resources; but in the real world, economics is a *system of relationships* created by the distribution of resources. And it’s the quality of our relationships that lie beneath discussions about economic inequality. The relevant question is not “what is fair?” but rather “what economic relationships make it possible for us to get along and live together in peace?”

How we get along may seem irrelevant, idealistic or even naive given the ascerbic tone of today’s political discussions, but the quality of our relationships couldn’t be more important. Almost a hundred years ago, we had similar gaps between the wealthy and everyone else. Such inequities gave rise to violent labor protests and reform movements. While the ultimate ends of those social justice movements were laudable, violence in any form is costly and should be prevented.

Another recent Gallup poll cites that the vast majority of Americans believe we should focus on economic growth instead of closing the wealth gap. Unfortunately, that economic growth may be a long time in coming, given Japan’s decades-long recession-turned-depression and the foreboding economic chaos in Europe. Right now and for the long haul, we need economic policies that will help us live together peacefully regardless of whether the economy is booming or busting.

During hard times, families find ways to put aside differences, band together and support each other. When they do, they are able to tap into a resiliency that can withstand and outlast hardship. We rarely consider everyone in the country to be part of a common household, but what would it make possible if we did? What would we do differently if we took that responsibility seriously? Rather than using the rhetoric of “fairness” to pit people against each other, the President and other policy makers would do well to remember that economic policies create more than just wealth — they create relationships. And there are some relationships that will withstand economic hardship better than others.

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Where to Find Financial Security

 

I grew up with the expectation that I should strive to financially support myself and my family all by myself, regardless of what my partner might earn. Why? Death, divorce, disability, disease, you name it. Life is risky. Anything can happen and often does. My work ethic was my personal safety net to insure me against potential financial disaster. I thought as long as I could work, I would be safe.

And then one day, I couldn’t work anymore. Poor health and severe post-partum depression set in after my daughter was born, and I left the workforce to care for myself and my new baby. When I suddenly realized I no longer had the self-sufficiency that working meant to me, my depression deepened. I felt helpless without a means of earning money. I hated depending on anybody, and my stress compounded with financial insecurity.

In truth, I wasn’t financially insecure at all. I was actually deeply supported by my husband, family, friends and collegues. I had a spouse with a job, some savings, maternity leave and COBRA health insurance. Those people and resources helped me get better, and two years later I joined the workforce again.

Here’s what I learned from that experience: When I thought what I needed was more cash, what I really sought was freedom from financial anxiety. I didn’t want to worry about if we were going to have enough to pay the rent just because I couldn’t pull my weight at the moment, but I also thought that caring for myself was a luxury I could not afford. What turned the dial down on my financial fear and worry was recognizing that I was part of a community that was not going to let me fall through the cracks. It turns out that my  self-sufficiency — my confidence in my own resourcefulness to be able to care for myself and family  – had a limit, and that limit was me. My bootstraps could only pull me up so far. To transcend the limits of my self, I needed to see that I was connected to and supported by others — even financially.

It turns out that even people who do have ample bank accounts feel financially insecure. A study from early 2011 by Boston College’s Center on Wealth and Philanthropy found that even the super rich “still do not consider themselves financially secure; for that, they say, they would require on average one-quarter more wealth than they currently possess.” The average net worth of the people in this study was $78 million. If $78 million didn’t make someone feel financially secure, then what would?

Our instinct in times of financial hardship is to narrow our focus to the survival of ourselves or our family. Unfortunately, it also ends up narrowing our focus of solutions to what we can do all by ourselves: cut expenses or increase income. Ironically, what creates the financial security and financial wellbeing that we actually seek lies outside the small, narrow focus in the larger networks of communities. With more resources to access, there is also more flexibility in how to respond.

But right now, our communities and governments are going through the same downward spiral of scarcity, cost-cutting and income-raising dilemmas we have at home. This is the time  to make investments in our capacity to support each other. Instead of debating what to cut and who to tax, we can ask ourselves:

  • How would we feel if we knew that the community supporting us was as big as a town, city, nation or a continent?
  • What would we do differently if we knew that our basic financial needs would be met through our community networks and supports when we hit rough spots such as unemployment, caring for sick family members, our own ill health?
  • What government policies can create the conditions in which we will feel supported by the financial strength of an entire community until we can regain our self-sufficiency?
  • What can we do now to dial down our collective financial fears? Who needs to be involved and how?

I’m not suggesting that we don’t need to cut expenses or raise taxes, but those are actions that need to be taken in the context of a vision we are trying to achieve. We are a country of unquestionable, tremendous wealth, and that wealth was supposed to be a proxy for financial security. But none of us feel financially secure, even if we have the wealth. If having the wealth doesn’t do it, then what would actually free us from financial fear?

Here are two things we can do with public policies to create conditions that lessen financial fear and increase our overall financial security:

  • Narrow the bandwidth for wealth– The wider the gap in wealth, the more room there is for comparison and stronger feelings of financial inadequacy. It’s like trying to keep up with the Joneses but always failing because there will forever be someone with (lots) more money than you. The more narrow the room for comparison, the less inadequate we feel. Plus, when we narrow the bandwidth, the fall from fiscal grace is shorter and the climb back up not so steep. Policies that narrow income and wealth gaps (such as progressive taxation) can do this.
  • Fulfill universal needs without contingencies for income — Our need to be able to care for each other is universal, not limited to those at the poverty line. If the need is universal, then so should be the program. Designing policies that help anyone who needs it, not just those who fall below certain income thresholds, creates a public good for everyone even though it will only be used by those who need it when they need it. One existing example is the Family and Medical Leave Act which requires employers of a certain size to offer unpaid leave to workers caring for new or ailing family members. Workers are eligible regardless of their income, and while anyone can envision a situation where they might need to use it, only some will need to at any given time. Strengthening this program allows us to focus on supporting the people who support others in need, so that there isn’t a competition between income and care. It supports a community’s ability to care for itself.

Maybe our government solutions to provide income supports (such as unemployment or welfare) have been incomplete in part because of our focus on getting individuals back on their feet. Investments in the community’s capacity to care for each other could top off those efforts, because it’s the supportive relationships that will give us the financial security we truly seek.

 

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Note: This is the last in a series on financial wellbeing. You can read the other posts in the series here, here and here.

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Philanthropy: “Take, then give.”

We’ve built an entire industry around giving and called it the philanthropic sector — and by this I’m referring to the institutional foundations like Ford, Carnegie, and Gates that represent the largess made possible by corporate profits, and then the nonprofit organizations that receive those funds and who work to mitigate the ill effects of poverty. Structured into the philanthropic sector is the inequitable distribution of wealth and power to create the necessary supply of capital (excess money available to make donations) and the demand for it (social problems created by that inequality). In other words, economic inequity and injustice are built into philanthropy itself. For the institution of philanthropy to survive, economic inequality must exist. Think about it: if we didn’t have an economic underclass in one corner and extreme wealth in the other, would we even need philanthropy?

Many philanthropists and those in the sector care deeply about finding solutions to poverty and other inequities. I’m not really criticizing people — I’m looking at the systems in which people find themselves and creates a kind of architecture through which much of their impact is constrained. If we were interested in building an economy grounded in sufficiency rather than maintaining an economy that creates scarcity to keep itself going, philanthropy would need to be different. Can we create a system that truly harnesses our inherent generosity without needing to create poverty and scarcity as a motivation? What would need to be different about the philanthropic sector?

What does philanthropy look like in a world where everybody already has enough?

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Give vs. Take

As the board chair for a local education foundation, I have to confess that what we do as an organization is a bit strange. Most foundations use their endowments to generate money that they give out as grants. We volunteer a ton of time to raise a bunch of money so that we can give it all away. Why?

Because it is fun.

It is fun to create something, especially with other people. It is fun to support programs that make a positive difference in children’s lives. It is fun to know that the work you do helps teachers teach and students learn. It is fun to turn your life and your community into the kind of place where you want to be.

Giving is one way to create something that lasts. It is one of the many reasons why charitable giving feels so good and is a core element of our financial wellbeing. We enjoy making a difference and using money with broader impact and purpose.

What if we thought about taxes in this way — a vehicle for giving, for creating something valuable and meaningful together? What would be different? What would need to be different about taxes to imbue them with this sense of purpose and generosity? How can we bring our experiences of raising and spending public revenues closer to the good vibes we get when we make charitable donations? I’d love to hear what you think.

 

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Creating and Distributing Time

Click on photo for easier viewing.

What is needed in order for us to have great relationships and life experiences?

Time.

If we had more time, we could use it to play with our children, visit with friends or volunteer in our community. We could go back to school, exercise or take up a hobby. All these things increase our sense of wellbeing, particularly our financial wellbeing according new Gallup research detailed in Wellbeing by Tom Rath and Jim Harter.

Time is the ultimate finite resource — we all have the same amount, we can’t store it and we can’t transfer it. If we were to aim the economy at creating financial wellbeing and know that time is an important part of it, how could we create more time?

Productivity has been one way that businesses have sought to get more out of workers and other resources in the same amount of time. The promise of productivity from a worker’s perspective is that if we are able to produce more in less time we could receive our dividends in time off or leisure.

While many Americans say they would exchange less money for more time, try finding a 30-hour a work week job. It’s not easy to do, because our jobs are structured according to a forty-hour standard. Benefits such as health care, workers compensation and retirement benefits are also tied to this definition of full-time work which provides employers with strong incentives to squeeze as much work out of as few workers as possible.

While our national productivity has been consistently high, few people get the time to enjoy it. Juliet Schor’s classic book The Overworked American demonstrated that Americans were working longer hours since the 1960’s and had not reaped the productivity gains one would have expected. Had all those gains been translated into time instead of pay, we would be down to 20-hour work weeks according to Schor (in “The (Even More) Overworked American” in Take Back Your Time by John de Graaf).

While some of us are overworked, increasingly more of us have no work at all. National unemployment is currently at 9.2% (Bureau of Labor Statistics, June 2011). This fact isn’t good for wellbeing either. Widespread and persistent unemployment is going to have some drastic impacts on how we feel about our lives, because according to Tom Rath and Jim Harter:

A landmark study published in The Economic Journal revealed that unemployment might be the only major life event from which people do not fully recover within five years…Our wellbeing actually recovers more rapidly from the death of a spouse than it does from a sustained period of unemployment. (emphasis in the original)

So from the perspective of wellbeing, we have a distribution problem with time where some have too much work hours and others too few. According to recent CPS data, the average full-time worker in the U.S. works more than the standard 40-hour work week (42+). If some people need time and other people need work, isn’t there something we can figure out here so that needs are met with the resources we already have?

Redistributing work hours through practices such as job sharing to reduce unemployment is one possibility that has been successfully tried recently by Germany and the Netherlands to help them weather the global economic storms in 2007. Rather than making time scarce for some and paid work scarce for others, we can implement policies that create both time and jobs for those who need them and in the right amounts. Giving people more time and reducing the strain of financial worry increase our sense of financial wellbeing especially during a tough economy — which is what we are really after, isn’t it?

[This post was the second in a series on wellbeing. The first can be found here.]

 

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Creating Financial Wellbeing

 

What makes life worth living?

This is the question answered by Tom Rath and Jim Harter in “Wellbeing: Five Essential Elements” and answered in a way only Gallup pollsters can. The answer is culled from massive amounts of data gathered by Gallup over fifty years and across 150 countries to describe what 98% of the world’s population would say is the best future possible for themselves. Rath and Harter call this best possible future “wellbeing” and say that it is:

 

the combination of our love for what we do each day, the quality of our relationships, the security of our finances, the vibrancy of our physical health, and the pride we take in what we have contributed to our communities.

The researchers refer to those elements as career wellbeing, social wellbeing, financial wellbeing, physical wellbeing and community wellbeing. They were careful to pick aspects that “we can do something about,” and throughout the book they make suggestions for what individuals can do to improve their wellbeing in each of those areas.

The book’s advice is limited largely because their definition of “what we can do something about” is restricted to what individual people acting by themselves can affect. For example, their three recommendations for boosting financial wellbeing are to: 1) buy experiences such as outings with friends and loved ones; 2) spend on others such as giving to charity; and 3) set up automated payments and savings. I do these things already but I don’t see them having a huge impact on my quality of life and virtually none on my community. I’m skeptical that these acts will create the wellbeing 98% of the population seeks.

The truth is that there is far more we can do to create wellbeing than the book suggests if we choose to pursue it together as a society. Take a look at the research findings about financial wellbeing that led them to their advice, because they are really quite profound:

  1. Universally what matters to people are quality of the relationships and life experiences we have;
  2. We derive more satisfaction giving money away than spending it on ourselves; and,
  3. The freedom from worry of finances creates three times as much financial wellbeing than a higher income.

Notice that these things have less to do with money than we think. The quality of our relationships is more impacted by our time and attention; charitable giving (or even gift giving) can occur with very small sums of money or just volunteer time; and the last finding puts the role of high income way down the pecking order of what really creates financial wellbeing.

If we want to create a world with lives worth living, we could harness the power of economic policy and focus it on creating a society that promotes the financial wellbeing of its citizens rather than the accumulation of wealth. To do that, we might use those three research findings as goals and create the right economic conditions that allow people to have great relationships and life experiences, that allow people to give generously and freely, and that enable people to avoid and recover from financial disaster (the most common these days is just getting sick).

To know what the economic policies need to aim for, we can ask ourselves: “What is needed in order for us to have great relationships and life experiences?” “What are the things or thoughts or feelings that enable us to give freely?” and “What would financial security look like concretely in our lives and communities?”

What would your answers to those questions be? Mine are coming over the next few weeks.

 

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Sounds Like Enough

United for a Fair Economy has done a wonderful video piece on inequality by expressing it in terms of sound. Watch and jump the break for my commentary.

For me this video really challenges the notion that there is not enough for everyone when we try to share wealth — a falsehood that many use to justify inequality’s existence by saying that sharing wealth leaves everyone worse off since there isn’t enough to go around in the first place. I’m less struck by the difference in wealth between bottom 50% of the U.S. population and the wealthiest 1% than I am by how much wealth there is when it is all shared. Even I thought it would be less.

Inequality is not a fact of life. It’s not gravity. It’s a choice. It is a difficult one to escape through individual effort since it is a collective choice, but it is a choice nonetheless. And it is anything but inevitable.

 

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Changing Tack

The signs of being in the wrong job are pretty obvious when you pay attention to them. I thought I had picked the perfect job for myself right out of graduate school by working as a researcher for a labor-community partnership. Had I been more discerning, I might have seen the poor fit in advance.

The first sign appeared when someone from the labor half of the partnership took me to lunch to get to know me better. The 50′s-style local diner he selected was union-approved — the waitresses were members of HERE and had been working there for 25+ years. I can’t remember details about what the place looked like, but I distinctly remember what I saw.

When he asked me why I wanted to work in this job, my answer played like a movie in front of me. I saw people working hard in their jobs but joyfully because they felt purposeful in their work. I also saw them not working in jobs — they were doing homework with their children, cooking for their aging parents and playing sports. I saw that what I wanted for all these people were also the very things I wanted for myself — a work life with meaning and purpose and a family life with time to care. It wasn’t an extravagant life that I envisioned for everyone, but it was full and rich. And, I knew that one of the things happening behind the scenes in this movie was a freedom from anxiety about money. That was just a given.

I returned to our conversation to see a furrowed brow on his face. “Don’t you care about wages?” he asked. Oh yeah. I’m supposed to care about wages.

But I don’t.

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I actually do care about wages, but improving wages is a means to an ends. To the degree that improving the wages and benefits of low-income workers helps them be able to live with less anxiety and enables them to care for their families (which in this economy it does), then that strategy is important to me. But there are lots of ways to help make sure that people are generally free of anxiety about finances in addition to improving wages.

Creating policies that promote widespread freedom from fear of financial devastation — policies that assume that collectively we have enough and enough to share — has always been a key part of my vision, and working for a great organization that improved low-income workers’ wages was consistent with that vision and values. But for a host of reasons, that job was not the right means for my ends, and I left it.

I’m not trying to say that similarly we should abandon efforts to improve wages especially among the lowest earners. But I am wondering if wealth accumulation — whether by the poor or the rich — is the right target for an economy that is based in sufficiency. If we wanted people to have the feeling that there is enough and we have enough, for what would our policies aim?

I’ve been playing with the notions of financial security and financial wellbeing. What do “financial security” and “financial well-being” mean to you? What would that look and feel like in your life and in your community?

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I’m back!

Dear Faithful Readers:

My deepest apologies for being away from my blog for so long. Work overtook my life these last three months, and I’m happy to say that it’s given me lots to write about here.

As backdrop for the next several posts, I want to share a bit about my work. Currently, I write as a freelancer — mostly grants for progressive nonprofit organizations, as well as other kinds of materials. I consult with nonprofits on fundraising and strategic planning, too. For my community and my kids, I volunteer as the board chair of a local education foundation and raise money to support our public school district. Looking at the trajectory of my career, my body of work is all about helping people access the revenues we need to lead a life worth living.

In many of my projects for the last three months, my clients and I were figuring out how to operate in scarcity-driven environments when we wanted to embody the values of sufficiency. At the same time, I was wrestling with my own perceptions of scarcity of time and weighing the value of the paid and volunteer work I was doing against my own and my family’s needs. It’s been a classic case of theory meets practice. I tend to be theoretical in this blog given the future-oriented, vision-driven writing I tend to do, but I’m also a very practical person. We can’t set goals without a vision, so the time we spend envisioning a better world will have a long-term payoff.

The next several posts will focus on work, cooperation and reciprocity. I’m not sure how they all fit together just yet, but I suspect somehow it does. I’m following a curious breadcrumb trail, and I hope you will continue to come along on the journey.

Cheers!

Kim

 

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Enough taxes?

I’ve been telling you that understanding taxes is really quite simple. Except when it’s not. One of the biggest misunderstandings about tax policy is how progressive taxes work. Progressive income taxation is commonly thought of as the more you make, the more you pay — as in Sam pays 10% of earnings in taxes because he makes $20,000, but Sally pays 20% in taxes because she makes $50,000. Well, it’s a little more complicated than that.

Taxes are like a tiered cake.

Our federal income tax system uses graduated marginal rates. This is how to think about it: Imagine each dollar that you earn is stacked one on top of the other. Next, picture a large wedding cake next to the stack of dollar bills. Each tier of the cake (called the tax bracket) has a corresponding tax rate that increases as you go up each tier. So in the example pictured, the bottom tier is 0%, the next tier 10%, the next 15%, and so on. (Note that this picture is based on information from 2008. The 2010 tax brackets are listed at the bottom of this post.)

When you calculate your taxes, the first part of your stack of bills (dollars $1-$7,200) gets taxed at 0%. The next part (dollars $7,201 to $14,200) gets taxed at 10%. The next part (dollars $14,201 to $33,450) gets taxed at 15% and so on. You only incur the higher tax rate if your stack of bills reaches that layer. After the taxes on the various layers are tallied, the percentage of your income that actually goes to tax is called your effective rate. Notice how “fair” is defined in this system — everyone gets the first $7,200 of their income exempt from taxes. The same dollars are subject to the same tax.

Is it progressive?

There are at least three general ways to make an income tax progressive (by progressive I mean that it reduces inequality, see definition in this blog post). One is to increase the rates. That’s what most people think of when we say “we are raising taxes.” Another is to change the tax brackets. For example, we could increase the dollars subject to 0% tax from $7,200 to $10,000 (as well as make various changes in the other tax brackets).

Notice the top layer of cake. This is commonly referred to as the top rate. In 2008, if someone made $300,000, the $4,450 she made in that tax bracket is subject to the 35% rate ($300,000 minus $295,550 — remember it only applies to the dollars in that bracket) — the same tax rate as someone who makes $2 million. In other words, our federal income tax is graduated at the lower end of the scale, but doesn’t differentiate at all between high earners and the mega-earnings of CEOs. It starts progressive, but then goes flat.

The third way is to increase the number of brackets. The Tax Reform Act of 1986 enacted by Ronald Reagan’s administration collapsed our income tax brackets from fifteen to four, with the top rate being 28% (in the 1950′s the top rate was 91%). Let me state that again — it went from fifteen brackets to four! Obviously, this legislation had the effect of making our tax system more regressive than it had been previously. There are lots of ways to play with these three options in combinations to come up with a very finely tuned definition of “fair” with regard to taxes.

How much is enough?

Much of debate about taxes focuses on the tax rates, less on the brackets, and nearly nothing on the top rate — largely because of our economy’s assumption of scarcity (and because it requires some explaining). If we assume that more is better and that we can never really have enough, then we are focused on tax rates to help us answer the question, “How much of what I earn do I get to keep?”

But what happens if we shift our focus to this question: how much is enough for a person to earn? What does a person need to thrive — and among those things, how much does he or she need to earn to do that? These are the questions that start from sufficiency, discovering and exploring the place of enough and enough for whom. Answering these questions helps us think about what constitutes a life worth living, what is basic and essential, and what is reserved for the “deserving” if we believe in such a thing. The answers to “enough for whom” start to reveal how we think about other people — our judgments, assumptions and prejudices about them. We can start to observe how we think of others and whom we consider deserving of what.

So, how many brackets do you think our tax system should have? What would your top rate be and where would it start? Where do you think we can say as a society to an individual, “You have enough, and now it’s time to share the wealth.”

 

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Note: The picture uses 2008 tax brackets and was easier to use than trying to draw my own cake. Here are the tax brackets for 2010:

Single Filing Status 2010 [Tax Rate Schedule X, Internal Revenue Code section 1(c)]

  • 10% on income between $0 and $8,375
  • 15% on the income between $8,375 and $34,000
  • 25% on the income between $34,000 and $82,400
  • 28% on the income between $82,400 and $171,850
  • 33% on the income between $171,850 and $373,650
  • 35% on the income over $373,650

Married Filing Jointly 2010 [Tax Rate Schedule Y-1, Internal Revenue Code section 1(a)]

  • 10% on the income between $0 and $16,750
  • 15% on the income between $16,750 and $68,000
  • 25% on the income between $68,000 and $137,300
  • 28% on the income between $137,300 and $209,250
  • 33% on the income between $209,250 and $373,650
  • 35% on the income over $373,650

 

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