Marginal Tax rate explained - a visual

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This is not a post to support or bash the Marginal tax rate system. But rather a simple explanation to common errors we hear on the news, in conversations, etc.

Many people believe that if you earn $1 more than the next tax bracket that the entire amount of income shifts into that bracket. I've even heard reporters mention things like this.

When I explain the marginal tax system to people I show them 4 cups. One cup has 10%, one 15%, one 25%, and one 35% on them. I then take a Pitcher full of water and the pitcher is labeled "taxable income."

From here I pour the "income" into the 10% cup until it is full, then fill up the 15%, then part of the 25% cup until the pitcher is empty.

I believe this is a good way to explain how it works, because how many times have you heard "that pushed me into the next tax bracket!!!"

I'm sure most of you here understand this since BP is a pretty savvy group, but it could be a good, simple way to explain it to our misguided colleagues in the future.

Take Care,