Does ABC News understand how income tax works?

Apparently not!

ABC News reports on "upper-income taxpayers" who are trying to reduce their income so they avoid proposed tax increases on those earning more than $250,000.

According to ABC, one attorney "plans to cut back on her business to get her annual income under the quarter million mark should the Obama tax plan be passed by Congress and become law." According to the attorney: "We are going to try to figure out how to make our income $249,999.00." ABC also quotes a dentist who is trying to figure out how to reduce her income.

This is stunningly wrong.

The ABC article is based on the premise that an individual's entire income is taxed at the same rate. If that were the case, it would be possible for a family earning $249,999 to have a higher after-tax income than a family earning $255,000, because the family earning $249,999 would pay a lower tax rate.

But that isn't actually how income tax works.

In reality, a family earning $255,000 will pay the higher tax rate only on its last $5,001 in income; the first $249,999 will continue to be taxed at the old rate.

So intentionally lowering your income from $255,000 to $249,999 is counter-productive; it will result in a lower after-tax income.

The people ABC quoted don't seem to understand that. Worse, ABC doesn't seem to understand it, either.
Read on.