Steven Pearlstein raised an interesting point on the double taxation of corporate profits [“On billionaires, secretaries and taxes,” Business, Nov. 27].
However, he appears to have made a fairly common mathematical error when adding together taxation rates. Just as a 50-percent-off sale with an additional 50 percent off at the register does not add up to 100 percent off (instead, you will pay 25 percent of the original price), a 15 percent tax applied after a 27 percent tax does not add up to a 42 percent tax. If a dollar is taxed initially at 27 percent, 73 cents will remain. If an additional tax of 15 percent is applied to that 73 cents, then that will leave 62 cents. Thus, 38 cents have been taken from the original dollar, for an effective tax rate of 38 percent.
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