Cora's a little over 5'5" tall, and she's only thirteen-years-old. Her father is tall, too. She's taller than I am, and she's way past wearing momma's heels for dress up. Her feet don't fit in them anymore.

Her growth isn't stopping, and probably won't for a few years. But, one day there will be an end to the marks on the wall. This upward movement will cease, and she'll maintain the height intended for her body.

This is called progressive growth, where everything grows in proportion to the human dimension. This is similar to our tax system. We pay progressive income taxes, based on income rather than height. Unfortunately, there's no end in sight to the growth of this system.

Let's understand how this progressive tax system works. First, the system is assigned different marginal tax rates to different incomes. Let's take the single woman from last week for an example. She was making $35,000 per year, was head of household, and she had two children. We figured her taxes based on a very simplistic tax method. Suddenly, her income doubled, but her tax rates increased about five times. How did that happen?

After adjustments, exemptions, and deductions, her taxable income for 2001 was $17,650. This meant she was in the 15% tax bracket, paying a 15% marginal rate. In 2001, her taxable income could have been up to $36,250, and she would still have been in the 15% tax bracket. To be simplistic, Uncle Sam got 15% of this woman's taxable income.

In 2001, the next tax bracket would have been the 27.5% tax bracket. This bracket ranged from $36,250 to $93,650. If this woman made $50,000 in taxable income (not gross income) in 2001, she would pay 15% on the first $36,250, and 27.5% on the rest. Are you getting the picture?

This year, in 2002, she's better off than she would have been in 2001. We figured her taxable income last week with the new 2002 exemptions, and standard deductions. With a salary of $70,000, she finally stood at a $52,100 taxable income. She's way into the next tax bracket, but this year the rate is a bit lower. Instead of 27.5%, the next tax bracket is 27%. The bar has also been raised on the 15% tax bracket. Instead of beginning at $36,250, it now stands at $37,450.

This means this woman will pay 15% on the first $37,450 of her taxable income, and 27% on the remainder. This puts her in the 27% tax bracket, paying a 27% marginal rate. Let's figure this out:

15% of $37,450 = $5617.5
27% of the remainder ($50,800 - $3,7450 = $13,350) = $3604.50

Add the two equations together, and she can expect to pay about $9,222. She'll probably subtract the child tax credits of $750 each, totaling $1500. That brings her tax bill down to $7,722. Don't worry if you can't or won't figure this the tax bracket percentages out yourself. Uncle Sam does this for you in the yearly tax tables.

Last week, we based her taxes on the 2001 tax tables, and it came to $8,303 after tax credits. The reason it's smaller this week is because the bar was raised on the 15% tax bracket for 2002. The income levels for tax brackets, standard deductions, and exemptions all grow vertical each year to keep up with inflation. In addition, Congress and the President in any given term like to get with Uncle Sam and mess around with the rates for the tax brackets. This means that every year, the tax tables and other standard subtractions from your gross income will change.

Still, this is a tremendous amount of money for a single mother to pay in taxes. What can this woman do to lower her taxes? I'm no tax specialist, but this is a list of a few things she can do to reduce or defer tax payments:

• She can plow some of that money into an IRA. In 2002, the IRA bar has been raised, too. This year, she can contribute $3,000, instead of $2,000. If she was over age 50, she could contribute $3,500. This way, she can adjust her taxable income down a notch, and she won't have to pay taxes on this income until she withdraws the money. This won't change her tax bracket, but her tax bill could decrease to about $8,222 before the tax credits. After tax credits, she's would only pay about $6,722.
  
  
• She can buy stocks or property, and sell them later for a profit. She will have to buy the investments with the remainder of her taxable income, but the profit she makes on these investments are taxed at only 10% for income in the 15% tax bracket, and 20% for income in all higher tax brackets if she holds them for at least a year (at least for the moment).
  
  
• She can stay single. If she gets married and files a separate income tax return, her tax bill could shoot up to about $11,500 before tax credits.

Granted, all these figures could change, dependent on numerous factors. Various and sundry deductions, ages of children, employed vs. self-employed, new husband not working - all this could all make huge differences in the grand total to Uncle Sam.

Cora loves her height now, especially when she stands next to me. She thinks it's hilarious she can look down and count my gray hairs. It wasn't always this way. Sometimes, she would walk around with books on her head, trying to 'flatten' herself (I let her indulge herself, knowing this exercise was really helping her posture).

I wonder what would happen if taxes were 'flattened,' too? Let's find out next week.

Until then,
Linda Goin