How Progressive Taxation Works

I've noticed that a lot of people living in the US don't seem to grasp how progressive taxation works.  I'd be less shocked if at least two of the people who were confused weren't MEDICAL DOCTORS.

Anyway.  The key confusion seems to be that people think that the Marginal Tax rate - i.e. the maximum potential tax rate is what they pay on their entire income.  It is not.

Let's assume a simple tax system with 3 bands.

0% - $0 - $9,999
10% - $10,000-$99,000
20% - $100,000+

If you earn $120,000 you do not pay $24,000 in tax.  You in fact pay, $10,900 - that's $8,900 on the $10,000 to $99,999 portion and 20% of the rest.

That would give you an EFFECTIVE tax rate of about 9% or so.  I was taught this when I was 14, it's really not very hard.

So when people scream that increasing the rate from 36% to 39% will crippled them, you have to remember they're getting worked up about paying another 3% tax on their income above $250,000....

Just saying.

How American Insurance Works...

I'm reading a lot of general confusion from Americans and non-Americans about how insurance works and there's a lot of misconceptions about how co-pays and deductibles work (for Brits read that as an excess).

So, here's how my insurance works.

We have an annual deductible of $3,000 - which means that we have to pay the first $3,000 of medical costs we incur.  However, that's not actually the case, because we have some things that are fully covered or we have a co-pay for and the insurance will pay the rest.  The problem is a lot of the 'co-pay' and 'insurance pay' is a bit of a shell game played with blank cards in a dark room with a dealer you can't see.

So, while we have a $3,000 deductible, we still get money paid towards prescription drugs - but the amount the insurance pays varies over the course of a year as we pay for our deductible.  So what we were paying $300 per script for in January we're currently only paying $75 for.  But come January the bills go up again.

To see my GP for preventative care i.e. an annual physical, I pay nothing, however, if the insurance company deems that any of the tests the doctor has done aren't covered I get a bill for them.  Last year it was a Vitamin D test which cost me $70...  If I have to see my Doctor for actually being sick, I have a co-pay, I think it's $75 and if the Doctor is a locum I might have to pay extra because the insurance won't cover the difference.

If I go to an ER I first have to check that it's under my insurance, and even then, if the Doctor isn't part of the network, i.e. a locum, I'll get a separate bill for their time.

So the Excess/Deductible on the policy is a weird and variable beast where it gets chopped and apportioned to different procedures and things you might have wrong with you during the course of a year.

Even weirder, there's a thing called a HSA into which you can pay thousands of dollars into Tax Free to pay for your deductible expenses and co-pays.

As a Brit it's all terribly confusing and involves reams of paperwork and random bills and repayment cheques from the insurance company which NEVER EVER reference the specific claim they are paying for, so you have to keep phoning to reconcile your healthcare costs.  (this is true)  Each Doctor's office has a small army of administrators running admin and billing functions too.

And this is without anything particularly expensive or complex happening, because if you need surgery or advanced treatment, you then get into the weird world of needing to get your insurance to approve the procedure before you have it.