Reality Check On Conservative Claims About Tax Increases

Daniel Gross has a post at Slate which provides a good follow up to my recent post on the lack of understanding by many conservatives of how the tax system works. Gross further debunks the claims from conservatives that the tax rates backed by Obama will present a great burden to those making over $250,000 per year leading to people being less willing to work. Gross writes:

On Tuesday, Washington Post columnist (and former Bush speechwriter) Michael Gerson argued in an op-ed that “Obama chose a time of recession to propose a massive increase in progressivity—a 10-year, trillion-dollar haul from the rich, already being punished by the stock market collapse and the housing market decline.” The plans are so radical, “there will not be enough wealthy people left to bleed.” CNBC’s Larry Kudlow wrote that “Obama is declaring war on investors, entrepreneurs, small businesses, large corporations, and private-equity and venture-capital funds.” Other segments on the financial news network warn of a tax on the rich, a war on the wealthy. My personal favorite was a piecefrom ABCNews.com, which had to be rewritten and reposted because the original was so poorly done. (The revised version isn’t much better.) It quotes a dentist who is contemplating reducing “her income from her current $320,000 to under $250,000 by having her dental hygienist work fewer days and by treating fewer patients. [That way, she] would avoid paying higher taxes on the $70,000 that would be subject to increased taxation if Obama’s proposal is signed into law.”

It’s hard to overstate how absurd these claims are. First, let’s talk about the “massive increase in progressivity” that Gerson deplores. It consists largely (but not exclusively) of returning marginal tax rates to their levels of 2001, before Gerson and the epically incompetent Bush administration of which he was a part got their hands on the reins of power. Obama wants to let marginal rates for families with taxable income (not total income, but taxable income) of more than $250,000 revert from 33 percent to 36 percent, and to let the top rate—currently 35 percent on family income above $357,000—revert to 39 percent. (Here are the current tax tables.) There’s also talk of capping—not eliminating, but capping—deductions on charitable giving and mortgage interest.

Obama’s proposals don’t mean the government would steal every penny you make above the $250,000 threshold, or that making more than $250,000 would somehow subject all of your income to higher taxes. Rather, you’d pay 36 cents to the government in income taxes on every dollar over the threshold, rather than 33 cents…

Gross makes some additional points and then concludes with a real world look at how much higher taxes will actually be:

Finally, there has been a near total absence of discussion of what higher rates will mean in the real world. Say you’re a CNBC anchor, or a Washington Post columnist with a seat at the Council on Foreign Relations, or a dentist, and you managed to cobble together $350,000 a year in income. You’re doing quite well. If you subtract deductions for state and property taxes, mortgage interest and charitable deductions, and other deductions, the amount on which tax rates are calculated might total $300,000. What would happen if the marginal rate on the portion of your income above $250,000 were to rise from 33 percent to 36 percent? Under the old regime, you’d pay $16,500 in federal taxes on that amount. Under the new one, you’d pay $18,000. The difference is $1,500 per year, or $4.10 per day. Obviously, the numbers rise as you make more. But is $4.10 a day bleeding the rich, a war on the wealthy, a killer of innovation and enterprise? That dentist eager to slash her income from $320,000 to $250,000 would avoid the pain of paying an extra $2,100 in federal taxes. But she’d also deprive herself of an additional $70,000 in income!

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4 Comments

  1. 1
    Eclectic Radical says:

    I don’t want to detract from the import of Daniel Gross’s piece or contradict Ron’s point. They are both right, President Obama’s policies are far from a radical escalation of class warfare in America.

    However, as a democratic socialist, I have to respond to some of the quoted comments by conservatives with a left-wing gasconade. I hope everyone hear forgives me. 🙂

    The deregulation of the Reagan, Clinton, and both Bush eras has created an atmosphere of economic lawlessness that can be compared to the Wild West of the 19th Century or the Spanish Main of the 17th Century without too much exaggeration.  The financial industry, in all its facets, and the largest corporations have engaged in a campaign of piracy against the American economy in the name of ‘the free market.’ This is not capitalism. We have veered dangerously close to a system of private enterprise funded by the nation as a whole, both on both a commercial and government level. The proper name for such an economic/political system is ‘fascism.’ I am not calling the US a fascist state, but we have come dangerously close and this move away from that destination is in the best interests of both the American people and the American economy.

    If ‘war is being declared’ on ‘large corporations’ and ‘private-equity and venture-capital funds’ it is a war of self-defense. Any class warfare in this country has been declared by conservatives, on behalf of the uppermost economic class, against the rest of society.

    I realize all this is harsh and polemical and I am not ‘anti-corporate’ or ‘anti-business’ in a philosophical sense. I am opposed to what corporations are doing to America right now.

  2. 2
    nomoreGOP says:

    i couldnt agree more.. what is wrong with the WHOLE picture right now is that we have the common American citizen just trying to make ends meet.. living paycheck to paycheck.. etc.. then we have the 2% running the country.. dems and repubs.. all with one thing in common.. THEY ARE ALL RICH… so we [average] have to contend with a constant barrage of CRAP from these people that are supposed to be looking out for our best interests.. when, in reality.. the corps and big business have had a very long and profitable relationship with our Govt…

    in steps Mr. Obama.. scary scary.. can you imagine the fear of the rich old white man? here comes this young, hip, BLACK (oh my goodness), educated, intelligent immigrant finally calling them out for all the BS they have been pulling over the past couple of decades..

    i just hope there are enough of us out there that really just want America to succeed.. whether under a republican or democrat.. and are willing to challenge some of the things they might of taken as fact from the people they thought had their interests in mind.. only time will tell.. (and sorry.. but 40 something days is not enough time to make ANY judgements about the current policies.. )

  3. 3
    Robert L. www.neolibertarian.com says:

    Bush didn’t deregulate anything.  He didn’t pass a single major deregulation bill, he added more than 7,000 pages of regulations to the Federal Register, and he supported Sarbanes Oxley, a heavy handed and pointless regulatory mess that has dragged down US competitiveness and which threatens CEOs with jail time.

    In one of the the few areas where Bush got it right, he also pushed for more regulation of Fannie Mae and Freddie Mac, which kicked off the melt down, and thus was defeated in multiple attempts to increase regulation of  mortgage markets.

    The idea that some massive deregulation caused this is an energizing myth being pushed by the left with the aid of the main stream media.  If regulation would have stopped this, why are heavily regulated European banks and economies in trouble?

    Also economically fascism is a system where private property is maintained but is controlled by the state through very heavy regulation which seeks to optimize the economy based on the knowledge of bureaucrats and the “efficiency” of state chosen economic winners and losers.  If this approach seems familiar it is because much of FDRs new deal was modeled on Mussolini’s Italy.  Deregulation is the opposite of fascism. 

  4. 4
    Eclectic Radical says:

    Repeating conservative talking points doesn’t make those talking points true.  The ‘7,000 pages of new regulations’ consist primarily of exceptions and special exemptions to existing regulations, allowing corporations to avoid obeying the law.

    Fannie Mae and Freddie Mac did not engage in the predatory lending practices that triggered the meltdown. The whole definition of a ‘prime’ mortgage was the rate charged by Fannie Mae or Freddie Mac when they secured a loan.  Once again, repeating conservative talking points does not make those talking points accurate or correct.

    I find the repetition of conservative talking points ironic, coupled with the dismissal of conflicting statements as ‘energizing myth.’ It’s not about ‘massive deregulation’, it’s about a steady pattern of deregulation in the name of the ‘free market’ since the Reagan administration.

    Fascism occurs when the market is controlled by the most capital-intensive corporations, usually with the support of the state. In an absolute ‘free market’ of the kind advocated by monetarists, the corporations able to raise the most capital will drive competitors out of the market and eliminate competition. Thus the ‘free market’ is actually entirely hostile to capitalism and instead rapidly becomes a corporate fascist economy.

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