Conservative Ignorance About Marginal Tax Rates

The wonder of the internet is that it allows people from all over to communicate. TBogg reveals a number of people who really need to talk to Justin Gardner (or anyone else who can explain, as Justin does,  how the tax system really works). TBogg picks up a number of quotes from people hanging out at Michelle Malkin’s blog such as:

  • Yep, it’s happening. Several friends are shutting down to sustaining levels. Partly due to housing and the rest due to the tax hikes.
  • I shut down my online businesses in early November, I don’t remember why. I’m now a net user of Obama Cheese. I may even apply for food stamps.
  • Small businesses will lay off employees, and I hope the first to go are the ones that voted for bho. They wanted ‘hope and change’, well you got it. These bho voters have NO idea how much more taxes they are going to be paying. I just hope those bho voters have their IRA, 401k and stocks cratered as much as those who DID not vote for bho. Such(sic) it up kids!
  • I have a friend who is planning to not work overtime this year to stay well below the dangerous benchmark that is 250k. His point was that he might as well take some time off and enjoy and relax rather than work and give every dollar above 250 away. I don’t blame his reasoning and the loss is, he spends his money.

Dangerous benchmark of $250,000? These people have absolutely no idea how the tax system works (as I noted last week). An increase of a few percent in the marginal rate applied to income over $250,000 will have minimal impact. People who really make over $250,000 (and I don’t believe for a moment that these people really do) are not going to stop working or lay off any employees. If there is a three percent increase in the marginal rate income over $250,000 will be taxed at three cents on the dollar more than before. They certainly are not giving away every dollar over $250,000. Income under $250,000 will be taxed at exactly the same rate as it was before.

There is no meaningful negative incentive to working here. Ignore all those losers at Malkin’s place. Those of us who really have thriving businesses are not quitters. The same characteristics which lead us to thrive in our fields will also drive us to keep on working and building our businesses. Paying a few cents extra per dollar in taxes is not going to change that. We might complain about the higher taxes, but we are not going to give up working over it.

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  1. 1
    Eclectic Radical says:

    Well, technically, most of the people making under $250,000 will see their tax rates drop. The people in the next-to-highest bracket will see no change. This is the bracket that tops out at exactly $250,000 a year. So technically, event he people making $250,000 won’t see their taxes go up either.

    Taxes will go up three cents on the dollar for people making $250,001 a year or more.

    And you are right, most of the people in question will not see their taxes go up at all. A small businessperson’s expenses are tax deductible up to a certain limit and  only gross above that limit is taxable.

    The small business tax panic is possible because many business owners do not understand the difference between their real income and their gross. People fail to grasp that the fact that their business brought in $500,000 but costs $450,000 to keep running means their business made $50,000 of taxable income rather than $500,000.

    Small businesses, sadly, are going to go out of business because of the economic difficulties. But barring serious clerical errors or criminal malfeasance, none of them will go under because of taxes.

  2. 2
    Fritz says:

    Hey, Ron… You might know this.  Are all of the proposals merely playing with marginal tax rates?  I thought that some of the newly-proposed changes (like the lessening of mortgage interest and charitable donation deduction) apply to the full income if the income is over $250K.  If so, this would be a small counter to the general thesis.

  3. 3
    Ron Chusid says:

    I’m just looking at changes in the marginal rates here, which the people commenting didn’t seem to understand at all. It certainly is possible that some items might have a some impact beyond marginal rates, but nothing which is going to make people stop working. Regardless of the ultimate tax plans passed, there is not going to be that drastic a difference between the person making $240,000 per year and $260,000 per year.

  4. 4
    Ron Chusid says:

    Eclectic Radical,

    Most small businessmen make well under $250,000 per year, and those who do will only wind up with minor increases in taxes. It is those making over $600,000 per year who will see a significant increase (due to getting rid of the Bush tax breaks) and few small businessmen come close to that.

    Assuming they don’t go out of business, the take home income of small businessmen will depend far more upon how the economy recovers than any small changes in the marginal tax rate. If Obama’s plans work,we will make more money even if taxes are a bit higher. Of course many Republicans do not want his economic plans to work. They’d rather see virtually everyone make less money.

  5. 6
    Ron Chusid says:

    The objection in the article you link to is based upon the Democratic response to the current economic crisis. Note the qualifications I included on this topic in the post. It is unfortunate for liberal-libertarian fusionism that Obama took office when he did. Obama is influenced by Chicago School economic thought and under more normal circumstances would be governing much differently.

    Response to short term political/economic issues, especially in such a time of crisis, must be kept in perspective when looking at long term matters of political philosophy. Will Wilkinson has previously debunked the premise of the Reason article:

    I’m not that interested in short-term partisan politics. I’m interested in a much longer-term project. I want to help create the possibility of a popular political identity that takes the value of human liberty, in all its aspects, really seriously. As I see it, this project involves an attempt to reunify the separate strands of the American liberal tradition. I’m not sure what it is about that project that would that lead Jonah to think Brink or I should be vexed by the behavior of the Democratic Party and its operatives. The stimulus bill vexes me not at all. It’s what you’d predict knowing the current extent of Democratic power, the opportunity that the perception of crisis creates, and the composition of the Democratic coalition. As a student of James M. Buchanan, I’m no romantic about democracy.

    Moreover, what is it about the era of George W. Bush that makes Jonah think that conservatives and libertarians see eye to eye on the large questions of political economy? I understand it is now politically expedient for Republicans to oppose whatever Obama is trying to do. But, frankly, the recent performance of the Republicans in Congress has been pathetic, managing to do little more than fight to get a bit more for their constituencies and a bit less for the majority’s. I do not remember hearing a plausible, principled alternative powerfully articulated by the Congressional Republicans. Maybe that’s because the great success of the GOP over the last eight years has been to destroy the reputation of free markets and limited government by deploying its rhetoric and then doing the opposite. Partisan Republicans choke on the truth that the emerging shape of the Obama era is the aftemath of the GOP’s successful, if unwitting, campaign to destroy the political economy they proclaimed.

  6. 7
    Ron Chusid says:

    Wilkinson also responds to the Reason article in the post I link to in this post. He correctly points out that the objection to liberaltarianism comes down to “it turned out that Democrats aren’t even interested in following the Republicans in using fake libertarian rhetoric for political gain. So liberaltarianism is doomed.” If you choose your allies based upon their rhetoric as opposed to actual policies, then, yes, Republicans are the natural allies of libertarians. If you look at their actual policies in office, Republicans actually have little to offer libertarians.

  7. 8
    Eclectic Radical says:

    Ron, in reply to your reply to my comment: yes. That was sort of my point. 🙂

  8. 9
    nomoreGOP says:

    is it horrible to truly deeply hope that Michelle Malkin gets hit by a bus?

    i think she just landed a top 5 spot on my hate list..

  9. 10
    Ron Chusid says:

    Yes, actually it is horrible. I disagree with Michelle on many matters but I would not like her to get hit by a bus and I do not wish anything bad upon her.

  10. 11
    Eclectic Radical says:

    We all think horrible things at times, sometimes we need to vent. That’s human nature.

    Pushing Michelle Malkin under a bus would be something else. Don’t do that.

  11. 12
    Ron Chusid says:

    Now that puts us on a slippery slope. Where do we draw the line? Is it ok to give the bus driver Michelle Malkin’s walking route in the hope that something happens?

  12. 13
    Eclectic Radical says:

    I hadn’t even thought about that. Now there’s an idea… 😉

    That was nasty humor. It is wrong to kill another human by direct action resulting in their death, even if that direct action is designed to limit one’s culpability. Indeed, if one is deliberately taking action to limit one’s culpability then one philosophically knows an evil act is involved and is taking an intellectually dishonest path to avoid its taint while achieving its goals.

    We draw the line between thoughts and actions. Clear, distinct, no gray area. It is wrong to kill Michelle Malkin, therefore it is wrong to attempt to induce her death or suggest its convenience in a manner that could incite another to act. This is still a conscience action.

    However, we can forgive ourselves for being angry at her or even hating her if we remember that she is a human being and has the same rights as we ourselves possess. Maybe we can even forgive her.

  13. 14
    nomoreGOP says:

    ok ok.. maybe i was a little too harsh with the hoping of the end of another humans life.. i concede..

    but how about a slight maiming? and then after she loses her job and cant pay her doctors bill.. maybe she will be humming a different tune about the health care system..

    or maybe have her go fight in iraq.. and when she is told that they have to wait for some blackwater employees to come help.. then after 2 days of no blackwater.. she can have a better understanding of why no-bid contracts to companies that were run by the same officials that gave them the contract might be a bit of a conflict of interest.. and maybe shouldnt happen..

    i am just appauled at the level of ignorance.

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