The $250,000 Focal Point

Which side are you on, Will?
Which side are you on?

The "works for a non-profit" side.

Actually, it's NOT just people over $250 000. Those middle class tax breaks apply to everyone. You have to make >more< than $250 000 for the increase to cancel out the decrease.

Also, people with higher incomes take advantage of more deductions. Like the charity thing, or the housing thing.

Most importantly there's the (still) lower rate on capital gains income. Which is the kind of income that most people making >more< actually earn.

Nice formulation of a folk theorem for tax focal points!

Obama did say that he wanted to "spread the wealth around". Everyone understood what he meant by that. Here it is.
Is a flat tax fair? Would it pay for the ever-increasing real services as well as the pork controlled by our elected officials? We will never know as too many people (tax lawyers and CPAs to name a few) make very good livings deciphering our byzantine tax structure.
Right now several groups (homeowners who can't pay their mortgage, banks and financial institutions, American car-makers and their work force come immediately to mind) are lining up at the federal trough. For now, if you earn more than $250K you will pay more. Eventually, even the folks at the trough will see an increase.

Rich people don't pay much in taxes. They have accountants, lawyers, and lobbyists to do their bidding.

If Obama had a clue, he would shift to a flat tax with no exceptions or deductions apart from some sort of individual first $10-20k isn't taxed.

uknowbetter has no right to a flat part of my life!!!11!!1one!! Get out of my country!!1!eleven!!1! Wolverines!!!!!

Right?

lol. Taxation is immoral. That doesn't mean there are forms that are less immoral than others.

My life belongs to me and not to thee.

I think the high number was chosen for a different purpose - it was meant to be a number high enough to discount the Republican campaign: "He wants to raise our taxes!"

The whole Joe the Plumber cycle shows that it didn't really work at that. People making less than $100K still felt $250K was "their" taxes. But now it is built into the psyche as a bar ... but one that grew out of the campaign strategy, not IMO class conflict.

I stand corrected. Thanks for the reference.

The point about whether this particular tax increase is going to be sufficient is well taken.

But, as to why only the $250,000 folks, isn't the answer really that this change is simply the flip side to the coin which were the Bush tax cuts of 2001? Allowing them to expire has the same line-drawing quality as the initial cuts did. And, politically, doing more might prove difficult - as we're already seeing with the idea of deduction scaling ending at 28%.

But, as to why only the $250,000 folks, isn't the answer really that this change is simply the flip side to the coin which were the Bush tax cuts of 2001? Allowing them to expire has the same line-drawing quality as the initial cuts did.

Are you serious? No, absolutely not. The Bush tax cuts of 2001 cut taxes on the poor and middle class as well. See for example here.

The lower part of the 15% bracket was dropped to 10%. The 28% bracket was lowered to 25%. The 31% bracket was lowered to 28%. All of these affect people making less than $250,000.

The idea is to keep the tax cuts on people making less than $250,000 that were in the law, but remove the tax cuts on people making more.

Of course, one could argue about the wisdom of the tax cuts on the rich but not the poor in the first place, but that's very different from saying that this is "simply the flip side of the coin" of the original tax cuts. That's a remark born of astounding ignorance as to the original tax cuts.

The tax cuts were of course subject to all the standard arguments-- they benefited the rich more in dollar terms, but actually provided a greater tax cut as percentage of income to the poor (and actually made income taxes on whole more progressive). Feel free to disagree with them, but it's utterly untrue to claim that the Bush tax cuts of 2001 were only the ones on the rich.

I have to ask, why is it that we no longer live in caves? Is it because cavemen had a progressive tax structure or is it because they invented new things? Our obsession with progressive tax policy is clearly absurd.

Q.E.D.

let's be honest here, the class warfare message is more "heard" by those who have prepared their minds to hear such things than it is "sent" by Obama's budget. Another message one could hear if they so choose [actually i think you'd have to actively opt out of hearing this one] is that the government has decided it needs money to pay for shit and the more wealthy among us, um, by definition, have it -- no emotions (or magic) involved.

I mean you wouldn't say that a firm engaging in price discrimination is doing so out of resentment. They say "it's not personal, it's just business." I think that applies here. So if you think it's bad business, say so. The class warfare objection is no less silly than declaring that the movie theater thinks you don't deserve your wealth because it's charging you 8 bucks for popcorn.

I disagree. There is no way the rich are going be able to finance everything Obama wants. If Americans really want Obama's budget, the middle class really is going to have to pay for most of it. The choice to avoid telling Americans the truth about who is going to have to pay is I believe is a concerted piece of class-war populism. Even a small increase on the middle class would send a "we're all in it together" message. But he clearly decided against that message in favor of a "they pay" message.

There are 2,245,000 American households earning $250,000 a year and up.

Their average income is $418,063 a year.

Their total income is $938 billion a year.

What is your estimate of the cost of "everything Obama wants," Will?

What is your estimate of the cost of "everything Obama wants," Will?

President Obama's recently released budget raises spending by 2.4-2.6% percent of GDP in the outyears (2013-2019) compared to currently or the post WWII average, as seen here.

So it's reasonable to say that the cost of "everything Obama wants" is about 2.5% of GDP a year. 2.5% of GDP is about $346.2B in current dollars.

$346.2B is 37% of the total income of American households making $250k a year and up.

So in order to pay for "everything Obama wants" only from those making $250k and more, it would take 36.9% of their total income every year to pay for it.

Even if we assume that none of them work less or hide their income if we raise rates dramatically (a poor assumption), we would have to raise the top tax rate from 35% to 72% under this assumption.

Actually, it could be worse; that's just to keep deficits the same size as Bush. If we stipulate that the Bush deficits were too large, and that the top tax rate should never have been lowered from 39.6% to start with, then it's reasonable to use that as a base. In that case, the top tax rate would need to rise to about 76.5% in order to pay for "everything Obama wants."

In reality, middle class people will pay for part of it, and part will be increased deficits and debt.

As justification that it could be worse, note that the President's budget estimates around $30B in today's dollars from raising the highest rates back by 3% and 4.6% each. (In much later years more, thanks to inflation and possibly also real bracket creep.)

So by that measure, in order to get $346.2B, over eleven times as much money as gained by raising those top rates by 3 and 4.6%, the 37% increase in top rates probably underestimates things.

Even if Obama raised the tax rate on households earning $250,000 a year or more to 76%, they'd still be taking home $100,000 a year on average.

So, contrary to what Will said, the rich could finance "everything Obama wants."

Ha! I'd like to see someone try that these days. The effect would be roughly equivalent to banning women from working in professional careers.

I say we just confiscate 100% of the income of all Democrats.

That would pay for it.

I guess this comes down to whether you believe that Obama will raise taxes on the middle class to pay for his agenda, that his agenda cannot be realized without a middle class tax increase, and that Obama already knows this. That may be the case, but I don't know enough about the budget (or the future) to say. [I'm curious, what convinces you that this is the case?]

Also, wouldn't that mean Obama has decided that he will raise taxes on the middle class after saying he wouldn't? I mean, I'm no political strategist, but that doesn't seem like a winning plan.

Also also, Aren't there non-message-related reasons for not taxing the middle class during a recession?

I'm curious, what convinces you that this is the case?

Obama cannot pay for his agenda without either increasing the deficit substantially even from that run during the Bush years (and I'm talking about comparing full recovery to full recovery-- Obama predicts significantly larger deficits in 2013 to 2017 after years of uninterrupted growth than Bush had in 2005-2008).

A substantial portion of extra revenues in the budget were contained in cap-and-trade auction revenues. Now, I'm a fan of a carbon tax or cap-and-trade as a more reasonable way to raise revenue than alternatives, but a carbon tax and cap-and-trade are both taxes that will hit the middle class. They are substantively equal, as a tax focuses on marginal cost of pollution, and reduces all pollution that is cheap to reduce but no more, whereas cap-and-trade focuses on achieving a certain level of pollution regardless of cost.

But cap-and-trade will work as a middle class tax increase. I understand the political strategy of hiding and disguising such tax increases (that's why we have the corporate income tax, even though the tax incidence falls on labor for the most part.)

Obama is predicting a deficit during the top of the economic cycle about a trillion bigger than Bush's. The total revenue collected by income tax from all individuals is about a trillion. Keeping the deficit the same with the proposed spending is almost impossible by just getting the money from the rich. They do pay an enormous percentage of taxes, but not enough.

Aren't there non-message-related reasons for not taxing the middle class during a recession?

Yes, but those same reasons apply to the rich-- which is why Obama is talking about not having those taxes be raised until the end of the recession in 2011, as predicted by his team.

A decent number of people are reacting more strongly. See this post on one girl limiting her income so she gets more from the government than she puts in:
http://pursuingholiness.com/2009/03/going-john-...

Many producers are going on various forms of strike. Let Obama tax his rich buddies like Ted Kennedy and Tom Daschle.

I'm calling BS here. If you are going to raise taxes, you have to raise taxes starting somewhere. You could start at 0 or you could start at 100,000 or you could start at 250K (which on average is probably 300K after deductions). To call this class war is farcical. Tax rates for the uppermost bracket simply return to a level equal to the Clinton years and less than the rate we had from 1932 until 1986. That would be a range of time full of strong job growth, GDP growth, and the rise of the U.S. as the lone superpower. Until 1981, the highest tax rate was still 70%. I could entertain the idea of class war if Obama was proposing that, although I'd still find it a bit simplistic. This particular increase applies to less than 2% of Americans, which by the way, contains most of the idiots who are responsible for our banking disaster. And if you hadn't noticed, these lower tax rates have hardly led to prosperity.

And the charitable deduction is unfair right now. When I didn't itemize it cost me $1 to donate $1. When I was in the 25% bracket and donated money, it cost me $.75 for each dollar. Now it costs me $.67 for each dollar. I have no idea why we would design charitable giving this way. Capping the deduction isn't class warfare, it's common sense. Perhaps we'll get even more common sensical someday and make the deduction the same for everyone. I say get rid of the deductions altogether and turn everything into tax credits.

1) "If" is the key word. But "if" we don't raise taxes, then there's no class warfare.

2) It's not just the action of raising taxes, it's the rhetoric behind it. It's the difference between outlawing sawed-off shotguns, and outlawing sawed-off shotguns because only inbred redneck hillbillies use them.

The problem is that our political culture has such an ingrained belief that taxation is theft or that people have some absolute right to keep every penny they "earn" that it has become impossible to have a rational conversation about tax policy. The default position of the average American is that taxes should always be lower no matter what. I lay the blame for this at the feet of libertarian and conservative ideologues.

Do you mean to imply that rational conversations take for granted that any level of taxation is just?

If not, this sounds more like handwaving to assume that point by use of a straw-man than anything else.

(And if you do mean to imply that, well, lots of luck getting agreement. I'll take those vile ideologies over the assumption that the State may do whatever it wants in terms of taxation, any day.

You call it blame, I call it credit.)

Actually, I take part of that back. I want to indicate up front that I dispute your premise. Tax policy has little to nothing to do with justice. So any level of taxation is neither just nor unjust. It's what we use the money to do that can be evaluated in those terms.

No, of course not. But read this uknowbetter's comments. The large majority of the electorate seems to agree that taxes are in some sense immoral and that we are violating some deep principle by daring to actually pay for the things we want done.

I'm pretty sure that very people think the State *may not* do whatever the hell pleases the Congress. Most of us agree that the State *should not* do many things, but we aren't actually having a debate about that. We're having nonsense pissing contests about who is or isn't a socialist or exactly how low we should set things like the eeeeeeeeeeevil corporate income tax instead of actually discussing what our government needs to do and exactly how we think they're going to pay for it.

The principle is the use of force. I have very little issue with government projects that are paid for through voluntary contributions or user fees.

You basically are sticking a gun in my face and demanding I pay for things because you think they are good. Well, isn't that special? How is that different, in principle, from sticking a gun in a woman's face and demanding she have sex with me because I think that is good?

Force is force, no matter how you dress it up, and how many people you have in your gang.

Sure it's use of force. But who says that force is always evil? If there are things that nearly everyone agrees the government should provide (police, military, etc.), then force, qua force, is not absolutely evil. Some things are so important that the only right answer is to force people to pay for them. Thus, the battle is, as it always has been and always will be in the real world, not one of principle but one of compromise and weighing of costs vs. benefits.

The initiation of force or fraud is nearly always wrong. Defending yourself with force against force is not wrong.

The right answer is to take a gun and stick it against someone's head who is minding their own business? I think you might need to look up the word 'right'.

Sorry, but the money earned from my labor (labor = time = my life) is NOT yours. I don't care how loud you shout or how many of you there are.

My life does not belong to you, your whims, your wishes, your guilt, or whatever other sort of silly nonsense is in your head.

Your attitude is sick and evil. You are no different than a rapist, a slave-master, or a dictator.

Taxes are the price you pay to live in a nation with roads and airports and hospitals and police. You knew when you went to work in the morning that a portion of the money you "earn" would go to pay for the road you drove in on, the car you rode in (assuming you bought American).

If the act of taxation bothers you so much, why don't you stop crying about PAYING for your well above average quality of life and get a job in a country that won't tax you? When you're done with that, please respond back here to let us all know how much work you're able to get done without reliable utilities and no police protection.

If you don't like my anti-tax attitude, you can go to Sweden or something and start PAYING taxes.

Why does this argument only cut one-way? People like you are the mirror image of the Minutemen, lining up at the border to reject people who aren't like you.

The price you pay to live in any country I live in is to get down on your knees every day and then pay me $20 million. Every day.

You are just lucky I haven't decided to come collect yet. Maybe tomorrow I will.

Get. Out. Of. My. Country. I was born here. I didn't sign any piece of crap piece of paper saying you have any right to any piece of my life.

You don't like my attitude? I suggest you get out of my country, and I suggest you do it soon.

This point of view might apply if the government did not monopolize these goods and I had to option of choosing other providers of them. Sadly, that is not the case. Using the governments resources and paying it's taxes are both a situation one is born into, not voluntarily accepting. As such, it IS a form of slavery.

At one time America was that country that had freedom of trade and low tax rates and an average standards of living. You are incorrectly assuming "well above quality of life" was always here, and not created by markets setup by those who were more interested individual freedoms than collective good.

Can't roads, airports, and hospitals be paid for by fees?

(Or by, as the Founders intended for the post roads, by excise taxes, which are not an income tax on labor, but change the price of goods - goods that one can in fact substitute or entirely avoid?)

My suspicion is that uknowbetter was not suggesting that taxation to support the police power was unjust*; I justify this suspicion by pointing out his wording, which suggests he meant to target those services founded on the attacked bases.

(* Certainly I won't make any such attack; public order and enforcement of property and contract rights are the foundation of any civilization. But there's no need to dive into Nozick for the justification here, if we're all willing to take that, at least, as granted.

Indeed, contra Ryan, Hayek supported a limited welfare state in addition to the night watchman state!)

I further submit that most of the improvements of American quality of life are not created by the fact that taxation currently pays for airport subsidies, or hospital subsidies for the indigent.

And for that matter, what do reliable utilities have to do with it? My local power and gas and communications providers are very much paid for by selling utility, not by taxes. The only tax-related utility I have is water and sewer, and if you wish to claim that they can only usefully be provided by a tax scheme, well... I'd love to see the basis for that.

Marginal cuts both ways.

A lot of the people just over the cut off are professionals that set their own hours (dentists, lawyers, doctors, small businessmen).

Presumably, they are working at their marginal utility. A reduction in the return on their work will result in a reduction in work.