Half of Americans don't understand marginal tax rates. Why doesn't the Democratic Party try to do something about this?

It's probably costing them at least some votes, and it's a fairly easy misconception to correct.

It is now mid-February, which means that we’re approaching the peak of tax filing season in the US. This would be an appropriate time for the Democratic Party to begin addressing a common misconception about taxes that almost certainly hurts them in elections.

Roughly half of Americans do not understand marginal tax rates. This finding has been borne out in at least two surveys. In 2021, Credello conducted a survey (n=1000) to test Americans’ knowledge about taxes, and published a summary of the results here. The relevant question in their survey was the following:

Which of the following statements is true?

1: You pay your marginal tax rate on all of your income.

2: You pay the same rate as others on income up to a certain amount, then a higher rate on every dollar until the next threshold.

51% of respondents selected the first statement, and 49% selected the second. The second statement is, in fact, the true one.

A few years later in 2024, the Tax Foundation conducted a survey (n=2,064) with a similar question:

Suppose your income places you in the 22% bracket - how much of your income do you think is taxed at a rate of 22%? (Options: All of it / Some of it / Not sure)

Only 48% of respondents chose the correct answer, “Some of it”. 34% selected “All of it” and 18% weren’t sure.

An Explainer for the Uninitiated

Given the evident extent of ignorance on this subject, it seems appropriate for this piece to include a brief explanation of how marginal tax rates (the system used for the U.S. federal income tax) work.

How you might assume income taxes work if you were going just by intuition

Here are the U.S. income tax brackets for a person filing as single in the year 2024 (obtained straight from the IRS website):

(Keep in mind, this is taxable income, not total income. There will always be a difference between these two, because whenever someone who made an income in a given year files taxes for that year, they get to exclude some of their total income from being taxed, which is called a deduction. The standard deduction in 2024 for a single tax filer is $14,600.)

Looking at this chart, you might assume that these rates are applied in the obvious, straightforward way: you get put into a certain bracket based on how much taxable income you had, and that tax rate gets applied to all of your taxable income. So, for example, if you were a single person who had $58,000 of taxable income in 2024 (to clarify again, this would correspond to somewhere around $73,000 of total income), you’d fall into the 22% income range and pay that rate on all of that $58,000. That would come out to $12,760 of taxes paid.

But you’d be wrong.

How they actually work

Instead, you only pay the marginal tax rate on the portion of your income that is marginally above the threshold for that bracket. The rest of your income gets taxed at the corresponding lower rates.

To lay it out more explicitly, marginal income taxes work as follows:

• The first A amount of dollars you make get taxed at the bottom rate (let’s refer to it as rate1)

• The next B amount of dollars you make get taxed at the next rate up (rate2)

• The next C amount of dollars you make get taxed at the next rate up (rate3)

• And so on, until all of the person’s taxable income has been accounted for in one of the brackets

In fact, the IRS website (previously linked) has a pretty good graphic that explains this (also, now you can see why I chose $58,000 as my example earlier):

Sticking with the example of a single person with $58,000 of taxable income, this can be broken out further as:

• first $11,600 taxed at 10% → $1,160 of taxes from rate1

• next $35,550 taxed at 12% → $4,266 of taxes from rate2

  • The $35,550 comes from $47,150 minus $11,600

• remaining $10,850 taxed at 22% → $2,387 of taxes from rate3

The total would be $7753 of taxes. That’s a decent amount less than the $12,760 that it would have been under the hypothetical “top rate gets applied to everything” system that we looked at earlier.

Why This Probably Has Some Electoral Importance; or, Why the Democratic Party Should Care

To put it simply, if someone mistakenly thinks that income taxes work the first way (and a reminder: 51% of Americans think this, at least by some estimates), it presumably would make them more likely to agree with Republican ideas about taxes, such as a flat tax.

After all, think about some of the ridiculous implications & edge cases that would arise if your highest marginal rate actually got applied to all of your income. You can probably already see where I’m going here: the most obvious issue under this system would be that in some cases, an increase in a person’s pre-tax wage/salary could actually cause a decrease in their take-home income, if it caused them to move slightly up into the next tax bracket. (For example, a single person with $48,000 of taxable income in 2024 would be worse off in that system than a single person with $47,000.)

And there is evidence that some people in the US are acting on this misconception, and intentionally turning down raises and avoiding increases in their income. If you search around on social media & internet forums for a little bit, you can find a fair amount of anecdotes along the lines of “I know a guy who actually turned down a raise because he thought that his after-tax income would go down with the higher tax bracket. Lmao what a dumbass, right?” (here’s one example on Reddit that I found quickly)

And this misunderstanding of marginal tax rates supports conservative politics in a pretty obvious way. You can easily imagine someone saying, “It’s ridiculous that someone can potentially end up with less take-home pay if they get a raise of a certain amount. It’s literally punishing success. Progressive taxes are stupid. We should just have a flat tax.” And then they go vote Republican.

Now, I should probably moderate my stance a bit here: I’m not saying that there are tons & tons of voters in this country who could be flipped from Republican to Democrat if they just had this one misconception corrected. In fact, I think that’s probably not the case; it seems fairly obvious that this isn’t a terribly salient issue in elections right now, and most people who voted Republican in 2024 had other issues at top of mind motivating them to do so. Republicans used to campaign on flat taxes a fair amount during the Obama era, but that was a while ago.

But I think there’s still something for Democrats to gain here, because well, think about what would happen if tons of right-leaning Americans suddenly became aware that they were directly wrong about an important aspect of income tax, in a way that supported conservative political conclusions. Think about how a right-leaning white guy with a job in the trades might feel upon finding out that he’d turned down a raise a couple years ago based on an understanding of tax rates that he now realizes was wrong.

It seems likely that people like this might become more persuadable on other things, right? They might start asking themselves, what else have Republicans lied to me about?

Correcting Americans’ understanding of marginal tax rates won’t flip that many voters immediately on its own, but it could plant a useful seed in a lot of Republican voters’ minds that liberals were clearly right, at least about this one thing.

My main point is: here we have a common misunderstanding about income taxes that is extremely widespread, is politically helpful to Republicans in a fairly obvious way, and is rather easy to refute. And the organized Democratic Party, as far as I can tell, is doing nothing about it. Isn’t that kind of odd? Why are they leaving a pretty straightforward messaging gain on the table? Why are they allowing the GOP to continue getting electoral mileage out of conservative voters’ ignorance?

What should Democrats do?

Basically I think Democrats should start doing some sort of information campaign.

The difficulty is in presenting this information in a way that could actually be received by conservatives, instead of being immediately be off-putting to them. An explainer article about marginal tax rates in NYTimes or CNN or Vox won’t go very far; I know this because the liberal press already has discussed this issue a fair number of times over the last 20 years and made more than one explainer about it, yet clearly the problem still exists.

I think liberals should do something a bit different, namely a conservative-coded media op. Some Democrat-aligned media nonprofit should create a tax information website with a conservative-coded name like “TAX TIPS: Free Information To Make Sure the IRS Doesn’t Screw You During Tax Season”. Then, they should load up the website with a bunch of legitimate information about various ways to save money on taxes (tax credits, etc.), but importantly, somewhere in there, they should also put an explainer about how marginal tax rates work. Then they should buy ads on conservative websites that take people to this tax website, so that conservatives click on it and one of the first things they see is the marginal tax rate explainer.

Another option is that they could make a well-crafted TikTok video that explains it, and get some big accounts to promote it. That’s probably a better idea, actually.