Predictions Regarding Marginal Tax Rates

Matthew Yglesias makes three predictions:

  1. At the end of Barack Obama’s administration, like at the end of Bill Clinton’s administration but unlike at the end of George W. Bush’s administration, the top marginal income tax rate will be higher than it was at the beginning.
  2. At the end of Barack Obama’s administration, like at the end of Bill Clinton’s but unlike at the end of George W. Bush’s administration, median income will be higher than it was at the beginning.
  3. At the end of Barack Obama’s administration, conservatives will still be obsessed with reducing the income tax burden on the wealthiest Americans as the key to sound economic policy.

I’ll add a little to this. With regards to number three, many of those Republican supporters obsessed over this have little understanding of what marginal rates mean. Even if they do, they do not understand the different effects of a higher marginal rate on someone making over $200,0o0 per year and on their income. While nobody likes higher taxes, each dollar lost is far less important at higher income levels. Contrary to common conservative mythology, those of us who run businesses are not going to suddenly decide to stop making money because the income is being taxed at a slightly higher rate.

While marginal rates will be higher than they are now, they will not be anywhere near rates of the past which could more accurately have been called confiscatory, and actually could have reduced incentive to produce.

The definition of wealthiest Americans will also differ from that used by Democratic politicians in the past. Political divisions are far less based upon socioeconomic divisions than at many previous times. Affluent, educated voters making $200,000 and more are increasingly voting Democratic. Many Democrats realize this. In 2004 John Kerry emphasized that his tax increases would not affect those making under $200,000 per year. Barack Obama realized that even this amount was too low for successful liberals in the new economy and upped the figure to $250,000.

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2 Comments

  1. 1
    Comrade Tovya says:

    This is a horrible move.  New taxes always make the economy worse.  Leave things alone, that’s how capitalism works.

  2. 2
    Ron Chusid says:

    Two good examples of erroneous conservative economic thought in the above comment:

    1) The belief (based upon a reasonable desire but not reality) that lower taxes always lead to better economic outcomes, and

    2) The view of capitalism as being a pure state of nature in which there should be no government involvement. While government intervention should be left at a minimum, markets require a certain amount of government regulation to work. Business also requires a certain infrastructure to work which is paid out of tax revenue.

    An undeveloped region will have far less government regulation and far less taxation than Manhattan, but there will also be far less wealth, far less business activity, and far less of what both business and government provide. Some degree of balance is needed.

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