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How a Graduated Income Tax Works
Fact: Under a graduated income
tax, when you cross into a higher bracket, only the income ABOVE that bracket's
floor is subject to the higher rate, NOT one's entire income. Following
is an explanation of how a graduated income tax really works, using TFT's Tax
Relief and Reform Act (SB 1013 / HB 1858) as an example.
See also the summary and 6 reasons to support the Tax Relief & Reform
Act
Sample families under the Tax Relief and Reform Act
To see how the proposal affects YOU, visit TFT's
online calculator at fairtaxation.org
Single adult,
$35,000 a
year.
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Income tax breakdown:
- First $15,000 x 0 = $0 (single adult ded.)
- Next $15,000 x 3.5% = $525
- Next $5,000 x 6.5% = $325
Total new income tax: $850
Total food tax savings: $187
Total non-prescription drugs savings: $11
Total sales tax savings: $190
Net increase is $462 |
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Income tax breakdown:
- First $15,000 x 0% = $0 (single adult
deduction)
- Next $2,000 x 3.5% = $70
Total new income tax: $70
Total food tax savings: $173
Total non-prescription drug savings: $11
Total sales tax savings: $115
Net SAVINGS is $229 |
Single
adult,
$17,000 a
year
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Single
adult
with two
children
making $36,000.
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Income tax breakdown:
- First $22,500 x 0% = $0 (head of household)
- Next $5,000 x 0% = $0 ($2,500 per dependent)
- Next $8,500 x 3.5% = $298
Total new income tax: $298
Total food tax savings: $340
Total non-prescription drug savings: $33
Total sales tax savings: $170
Net SAVINGS is $245 |
| Note: Single adults with dependents file as "head of
household." |
Income tax breakdown:
- First $30,000 x 0% = $0 (married couple
deduction)
- Next $2,000 x 0% = $0 ($2,500 per
child ded.)
Total new income tax: $0
Total food tax savings: $398
Total non-prescription drug savings: $44
Total sales tax savings: $215
Net SAVINGS is $657 |
Married
couple,
two children,
$32,000.
 
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| Note: The total deductions of $35,000 for a married couple
with two children is greater than their annual income, so this family
will not pay any state income tax. |
Married
couple,
two children,
$55,000.
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Income tax breakdown:
- First $30,000 x 0% = $0 (married couple
ded.)
- Next $5,000 x 0% = $0 ($2,500 per child
ded.)
- Next $20,000 x 3.5% = $700
Total new income tax: $700
Total food tax savings: $450
Total non-prescription drug savings: $44
Total sales tax savings: $319
Net SAVINGS is $119 |
Income tax breakdown:
- First $30,000 x 0% = $0 (married couple
ded.)
- Next $30,000 x 3.5% = $1,050
- Next $70,000 x 6.5% = $4,550
Total new income tax: $5,600
Total Hall Tax savings: $3,500
Total food tax savings: $415
Total non-prescription drug savings: $22
Total sales tax savings: $543
Net
increase of $1,120 |
Married
couple,
no children,
$130,000
with
investments.
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| Note: The above calculations do not include the savings
from federal deductibility of the state income tax. The actual increase
for the above family will likely be much less. |
The Numbers Behind the Tax Relief and Reform Act:
- It eliminates the state and local food tax.
- It completely eliminates the state and local tax on non-prescription
drugs.
- It reduces the state sales tax on other items by 2%.
- It eliminates the Hall Tax on investment income.
- It establishes a two-tier graduated income tax with generous
deductions.
For a single person with no dependents:
- Pay 0% on the first $15,000 of income.
- Pay 3.5% on the next $15,000 of income.
- Pay 6.5% on all income over $30,000.
For a head of household filer:
- Pay 0% on the first $22,500 of income.
- Pay 3.5% on the next $22,500 of income.
- Pay 6.5% on all income over $45,000.
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Married couples with or without children / dependents:
- Pay 0% on the first $30,000 of income.
- Pay 3.5% on the next $30,000 of income.
- Pay 6.5% on all income over $60,000.
Additional Exemptions:
$2,500 - Additional deductions per dependent. |
Download the complete Tax Relief & Reform Act fact sheet (1.1 MB PDF file).
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