As is well known, Personal income tax is a progressive tax based on bracketsso it increases as the income level increases. To calculate the amount that must be paid to the Treasury, there are different sections of personal income tax in which a different percentage will be applied, always based on the income integrated into the general income tax base. This tax generates very high effective marginal rates in the income bracket in which the amount is variable.
As it is a progressive tax, the rates -percentages- increase depending on the taxable base. In the recent Faith Bulletin The effective marginal personal income tax rate is calculated in the income bracket in which the reduction for work income is applied and is used to correct a couple of errors in the original calculation.
Since the marginal rates are very high, disincentives are generated. That said, the circumstance may arise that a person with a salary of less than 21,000 euros, depending on the autonomous community where they pay their taxes, can assume a marginal personal income tax rate of 48%. The sections, depending on the settlement, are:
- First tranche up to 12,450 euros in which 19% is paid.
- Second tranche up to 20,199 euros with a rate of 24%
- Third tranche up to 35,199 euros with 30%.
- Fourth tranche up to 59,999 euros with 37%
- Fifth tranche up to 299,999 euros with 45%
- Sixth tranche from 300,000 euros of 47%.
In any case, personal income tax taxpayers are aware that The final percentage to be paid will be divided into two sections: state (for the Government) and regional (for the autonomous communities).
For example, a person with a taxable base net of reductions, which the regulations adjust to 30,000 euros, depending on the regional conditions, will see certain rates and sections applied. In this way, at the first A rate of 19% would be applied to the first 12,450 euros (9.50% for the state rate and another 9.50% for the regional rate) and the following 7,750 euros (from 12,450 euros to 20,199 euros) 24% would be applied (12% state rate and 12% regional rate).
Then, to the next 9,800 euros, up to 30,000 euros of the salary in the example, a 30% (15% state and 15% regional).
The reduction due to work income
We must not forget that income from work will have to be deducted from the marginal personal income tax rate. Thus, it will be necessary to take into account: net income subject to tax (rn), taxable base (b) and applicable marginal rate
T(rn) = Tmini + τi (b(rn) – Bi)
where Darkness is the tax that corresponds to the taxable base at the lower limit of the i-th tax bracket, Bi. In turn, the liquidable base is given by
b(rn) = rn – rrt(rn)
where the reduction due to work income, rrt, is calculated (after the changes introduced in the 2023 PGE project, art. 60). That said, the effective marginal personal income tax rate is calculated taking into account the range of net returns in which the reduction decreases with income.
The hump of marginal rates
In the Ley 35/2006 of the Personal Income Tax, it is established that the objective of this tax is the contribution of everyone, so it has a personal and progressive character.
The effective marginal personal income tax rate is 0% until the minimum interprofessional salary is reached (15,876 euros per year). From that moment on, it rises to 19% and then to 49%, and then drops to 38% and rises again to 48%. That is why it is known as the double hump of the marginal rate of the IRFP. Afterwards, it tends to drop to 22% to progressively rise again with income.
Source: Faith
High marginal rates can be a disincentive to work. In this way, a worker with an annual salary of 18,000 euros, if he sees his gross salary increase by 100 euros, would only see his net income increase by 51 euros, since his personal income tax rate increases by 49 euros. In this way, there is a clear disincentive for the worker to want to work more hours.
Las statistics set by the AEAT for 2022 reflect that in the income range between 18,000 and 23,000 euros There are more than 2.7 million taxpayers (13% of the total). Furthermore, inflation has led to the so-called inflation effect. ‘cold progressivity’.
This situation has had a strong impact on the fourth decile of income distribution, coinciding with the range close to 20,000 euros per year. So, For every 1% increase in income, the personal income tax rate increases by 10% for people in said income bracket..
Source: www.elblogsalmon.com
