Tax Increases For Very Few

I really hate it when Obama and other Democrats talk about increasing taxes on families making over $250,000 because they are  making their tax plans sound worse than they are. We then see conservatives use scare tactics that people will stop working once they reach $250,000 in income to avoid paying higher taxes, but this makes no sense to those who understand how marginal tax rates work. Even if one earns enough to fall under the higher rates, taxable income under $250,000 will still be taxed at the same rate as before the proposed increase. Only taxable income over $250,000 will be taxed at the higher rate, resulting in a modest increase in taxes for most upper income earners. Steve Benen provided this table (via Kevin Drum) explained:

If your family makes $250,000 a year, under Obama’s plan, every penny in income will get the tax break. If your family makes $260,000 a year, under Obama’s plan, you’d get the tax cut for your first $250,000, then pay slightly higher taxes on the $10,000.

As a result, everyone with an income would get a tax break. Even those at the very top would end up paying less in taxes than they did under Clinton because Obama would still give them a break on their first quarter-million.

Good explanation, but there is still one key point left out. It takes an income closer to $300,000 to have a taxable income of $250,000. Few people earning over $200,000 aren’t putting a good chunk of income in retirement accounts, and there will be other tax deductions such as mortgage interest and local taxes. This reduces even further the number of people who will have to pay an extra 3 percent on a portion of their income.

Despite all the talk about “job creators,” only 3 percent of small business owners make over $250,000 per year.  As Jonathan Capehart pointed out, “As the president said yesterday, letting the Bush tax cuts expire for the wealthy would not impact 98 percent of American wage earners and 97 percent of small-business owners.”

Besides, as a business owner, I would also point out that minor changes in taxes have zero impact on how many people I hire. I hire employees based upon what is needed for business purposes. I’m not going to avoid hiring another employee if one is needed should I have to pay a few hundred dollars more a year in taxes if taxes are increased. Democrats are also offering more tax breaks for small business as well as the middle class, but even without these breaks I’d  be willing to pay a few hundred dollars more a year in taxes under the Democrats as opposed to voting for a party which is anti-science, pro-theocracy, and hostile to individual liberty.