New Jersey Policy Perspective (NJPP) released a timely examination of Governor Chris Christie’s income tax returns last week.
The group used the Christies' tax return to illustrate an important, and often overlooked, point about the distinction between marginal rates (which apply only to taxable income over the amount where the tax bracket starts) and effective rates (which tell us what share of a taxpayer’s income goes to overall income tax). While the Christie’s 2009 taxable income of $540,792 pushed them into a bracket (taxable income of $500,000 and above) with a marginal rate of 10.25%, only the last $40,792 of their taxable income was taxed at that top rate, not the entire amount as is most often assumed.
Like every other household in New Jersey, the Christie family benefited from the state’s progressive graduated rate structure, which applies different rates at different levels of income for all taxpayers. For example, the rate for the first $20,000 of income in New Jersey is 1.4%, so the Christies paid only $280 on that portion of their income.
As a result, Governor Christie and his wife paid just 6.2% of their income in state personal income taxes in 2009, rather than 10.25% as the governor would have you believe. NJPP’s report found the actual share of income the Christies paid in taxes to be in line with rates in Georgia, and lower than neighboring New York and Philadelphia, PA.
Too often in tax policy debates — and certainly in the current debate on the Bush tax cuts — lawmakers, advocates, and the media foster a misunderstanding of how graduated income taxes work, implying that a “high” tax rate applies to every dollar of income. Thankfully, NJPP’s new report sheds a light on the distinction between marginal and effective tax rates.