It all started on November 18, when The New York Times published an article by Nathaniel Popper and Nelson D. Schwarz headlined, Investors Rush to Beat Threat of Higher Taxes. Much of the discussion was about tax increases that would take place in 2013 if the fiscal
cliff curb is not averted, but the article quoted a woman in McLean, VA who is deeply concerned about what will become of her business if President Obama’s tax proposal is enacted.
Kristina Collins, a chiropractor in McLean, Va., said she and her husband planned to closely monitor the business income from their joint practice to avoid crossing the income threshold for higher taxes outlined by President Obama on earnings above $200,000 for individuals and $250,000 for couples.
Ms. Collins said she felt torn by being near the cutoff line and disappointed that federal tax policy was providing a disincentive to keep expanding a business she founded in 1998.
“If we’re really close and it’s near the end-year, maybe we’ll just close down for a while and go on vacation,” she said.
Either Popper and Schwartz do not understand Obama’s proposal or they simply chose not to call Ms. Collins’ attention to her error–or perhaps they’re just media hacks. A number of bloggers responded with derision. Here’s Dave Wiegel:
How do you get to be as rich as the people in this New York Times story without ever figuring out how taxes work? [….]
You see these idiots every time a tax hike becomes possible again. They have no apparent idea how marginal rates work. Right now, if her and her husband make $250,000, they pay at most a 33% tax on some of that income. If they made $251,000, they would have to pay the same rates for everything except that last $1000 — that, they’d be taxed at 35%. If the rates increase across the board that top rate becomes 39.6%.
Derek Thompson argues that the NYT journalists should have at least gently explained to Collins that she was confused about the way tax rates work.
Kevin Drum provided a handy dandy tax table to help the “innumerate rich people” who are confused about marginal rates.
Their analysis is basically sound, except for the fact that it is not quite true. They have forgotten to look at deduction phaseouts, surtaxes, and the AMT, which are not taxes on marginal income.*
No matter what you have heard on the internet, there are in fact a lot of sizeable marginal inflection points for high earners. There are the Pease deduction phaseouts, temporarily abated by the Bush tax cuts but scheduled to go back into effect in 2013, which can eliminate up to 80% of deductions for couples who make more than about $175,000 (the number is indexed for inflation, so it changes every year): your deductions are reduced by 3% of the amount by which your income exceeds the threshhold. The student loan interest deduction phases out at $150,000 ($75,000 for singles). And a lot of tax-free savings opportunities disappear: educational savings accounts and IRAs have income limits, so your ability to use them starts phasing out in the low-six-figure income range. So do various educational and child tax credits. These things obviously aren’t a huge deal for people who make $1,000,000 a year but they can be a huge tax hit for couples in the $150,000 to $300,000 range. Come 2013, they will be an even bigger hit.
And we haven’t even discussed the AMT, which virtually eliminates deductions for couples who make the mistake of doing things like buying a house, having children, or living in a high tax state.
McArdle provided this chart:
I have to be honest, I’m not going to spend a lot of time worrying about people as wealthy as the ones McArdle is freaked out about. But in any case, Kevin Drum took note of the issue McArdle raised in a follow-up to his earlier post. He agreed that there are complex issues for people in the upper income brackets.
None of this really affects our discussion of people with incomes over $250,000, but it does illustrate the fact that moving across a phaseout line can sometimes have a significant effect on your taxes:
For example, a married couple filing jointly in 2013 with two kids at home and one in college who go from making $100,000 to $125,000 loses a $2,000 child tax credit and $1800 worth of HOPE credit, an increase of almost 4% in their effective—not marginal—tax rate. The marginal tax rate on their extra earnings is 15.2% just from deduction losses; that comes on top of the 28% they’ll be paying the federal government in income taxes, and whatever state income tax they owe.
I don’t have any real point to make here. I just wanted to acknowledge that my income tax chart only showed one piece of the picture. It’s the most important piece for most people who earn under $1 million (above that, investment taxes tend to become more important), but there are still plenty of little gotchas in the tax code that can have funny effects as they phase in and out.
Democrat and former Michael Dukakis campaign manager Susan Estrich is very upset that the presidential candidate whom she supported actually is intent on raising taxes on the rich — which, lo and behold, includes her. She complains: “I did not vote for Obama because I think I am paying too little in taxes. Like many people I know, I am ‘rich’ by Obama’s standards. I pay more taxes, percentage wise, than Mitt Romney and Warren Buffett, because I earn virtually every penny of my income. I work. And yes, all those deductions that allow the truly rich to not work, or at least to not work all the jobs I do, make me angry.”
She means she earns mostly ordinary income as opposed to capital gains, but you see her point — who the heck is Obama to tell a hardworking upper-middle class gal she’s not paying enough in taxes?!
I have no idea how much Susan Estrich earns, but if it’s all ordinary income, then she’d pay the same amount as before on the first $250,000, right? And she’d pay a few percentage points more on anything she earns over that amount. Big f&cking deal!
More from Rubin:
If you live in New York or Los Angeles and have an income of $250,000, two kids and a house in a nice but not ostentatious neighborhood, you are not living a lavish lifestyle and you already pay gobs and gobs in taxes. You didn’t inherit wealth and you worked hard in college and in your profession, only to find yourself living paycheck to paycheck. And now, you’re going to get socked with a tax hike.
Not if it’s all ordinary income (i.e., “paycheck to paycheck.”) And if a family with an income of $250,000 is living “paycheck to paycheck,” they need to work on a budget. I didn’t inherit wealth and I worked my ass off in college too. So did millions of other Americans. Big f&cking deal! If you need more, get a second job.
For years Republicans have been warning that the Obama-size of government will require much more than taxing the “rich.” That means not only the $250,000 earners (say, a white-collar professional with a mortgage, college tuition bills and a mother in long-term care) but the $80,000 earners (say a teacher in Massachusetts with a cramped condo, an old car and kids) also are going to be told they have to pay even more of their income to the federal government.
Newsflash for Rubin–you can do better than a cramped condo on $80,000 in Massachusetts–and that would be on the high end for a public school teacher. But Obama’s plan wouldn’t increase taxes on someone making $80,000 as salary income anyway.
To these whiny rich people and concern troll media hacks, I say tough shit! The average income in this country is a little over $50,000. Plenty of those people have parents in long term care–or are caring for them at home. And plenty of poor people have the same problems.
Obviously the White House needs to get busy educating the public as well as the lazy corporate media about how the tax system works and exactly what Obama’s tax proposals are. And hacks like Jennifer Rubin especially should be fired. As long as the Washington Post keeps this hack among hacks on staff, it cannot be considered a serious newspaper.
Feel free to use this as an open thread. I know most people are gearing up for Thanksgiving. I’m another one of those people who don’t really like the holidays.
I can’t work myself up to writing a real post today for some reason. I’m kind of in a holding pattern waiting for the Republican Convention to start. I’m expecting it to be a complete disaster along the lines of the one in 1992 when Pat Buchanan gave his “Culture War Speech” and ended George H.W. Bush’s hopes for a second term.
Which one of the “Romney Bunch” will play the Pat Buchanan role? Will it be Rick Santorum? Will it be Mike Huckabee? Or Will it be Mitt Romney himself, the birther-in-chief?
Here are a few interesting links I’ve found this afternoon.
Think Progress: Seven birthers to speak at Republican Convention.
1. Donald Trump. The famed billionaire/birther king Donald Trump has been the most vociferous — and most closely connected to Romney — person alleging that the President wasn’t born in the United States.
2. Actress Janine Turner. The Northern Exposure star who has her own conservative radio show wrote a long screed titled “Reasoning ‘Kenyan Born.’” In it, she complains that anyone who questions the president’s citizenship is deemed a racist: “If this were a legal case in court, [Obama’s] book bio stating that Obama was ‘born in Kenya’ would be taken into consideration.”
3. Georgia Attorney General Sam Olens. During a town hall captured on video (at 3:5), Olens said, “You know the state of Hawaii says he’s produced a certified birth certificate… so on one hand I have to trust the state of Hawaii follows the laws. On the other hand it would be nice for the President to say, here it is, I have a copy.”
4. Former Arkansas Gov. Mike Huckabee. On one radio appearance during Huckabee’s bid for president, the former governor said, “I would love to know more [about where Obama was born]. What I know is troubling enough.” He later walked back the statement.
5. Florida Gov. Rick Scott. In 2010, the Orlando Sentinel reported than an audience member at one of Scott’s campaign events asked “what he would do about President Obama’s ‘birth certificate’ and whether he could legally appear on the 2012 ballot in Florida.” Scott responded, “I’ll have to look into it.”
6. Rep. Cathy McMorris Rodgers (R-WA). The Vice-Chairman of the House Republican Conference once told reporters “Oh, I’d like to see the documents.”
7. Louisiana Gov. Bobby Jindal. Jindal was willing to sign a “birther” bill into law. It would have required all presidential candidates to release their birth certificate in order to qualify for a spot on the state’s ballot.
Some of the best known birthers in the nation are scheduled to take the stage at a star-studded event in Phoenix, where they plan to call for Congress to investigate whether President Obama’s birth certificate is real.
There will be singing. There will be speeches. Drinks will be available for purchase. The only question is whether the venue, which features seating in the round, will activate its spinning stage. Promoters are calling it “A Greater Phoenix Tea Party Patriots Event” but you can call it Birtherpalooza.
The star of the gala is Sheriff Joe Arpaio, the eccentric Arizona lawman and a Republican who is running for his sixth term in office this year. Arpaio has been trying to find his way into next week’s festivities at the Republican National Convention in Tampa, Fla., even scheduling an “invitation only” event for Republicans at a nearby zoo. But he will not be part of the convention itself.
Arpaio has positioned himself as one of the leaders of the birther movement. For almost a year, he has been using a combination of taxpayer money and amateur volunteers to try to bolster the conspiracy theory that Obama’s birth records are elaborate forgeries designed to put a foreigner in the White House.
Pat Boone will be there too!
The Economist seems to think Romney should follow his own advice to “run toward the problem,” and release his tax returns as well us let us in on what he really believes in.
Mitt Romney had an interesting article yesterday in the Wall Street Journal entitled “What I Learned at Bain Capital.” In it, he explains how his business experience taught him how to help companies grow—and what to do when trouble arises. “When you see a problem,” Romney says, “run toward it before the problem gets worse.”
After Gawker’s massive release of Bain documents, Various journalists have begun to pore over the material and find instances in which Romney may have played fast and loose with U.S. laws.
Now that the hunt has begun, tax experts have begun to sniff blood. The more adamant that Mr. Romney is that he will not release his returns, the more energetic the search for answers will become.
The political reality is that Mr. Romney’s taxes create a massive distraction for his candidacy and get in the way of serious discussion of the substantive questions facing the country. So why doesn’t Mr. Romney follow his own excellent leadership advice, that he learned so well at Bain Capital, and run towards the problem, not away from it?
From the Post Partisan blog at WaPo: Romney’s Secret Tithe, in which Rachel Manteuffel discusses Romney’s latest excuse for not releasing his taxes–he doesn’t want to reveal how much he gives to his church. Haven’t he and Ann both said frequently that they give 10 percent? So is he afraid the church will find out he’s been holding out on them or what?
Florida Governor Rick Scott has declared a state of emergency. Will the RNC have to be postponed? I hope not.
Scott said the goal was to make sure every local, state and federal agency “has the exact same information” on the storm and preparations in order to make informed decisions. He issued the state of emergency Saturday during a media briefing in Broward County.
The state is also focusing on preparations ahead of the Republican National Convention in Tampa. Scott said delegates were being information on how to remain safe during a storm. Officials in the Tampa area were also being kept informed of issues that may occur due to Isaac, such as storm surge and bridge closures.
Tampa airport remained open Saturday.