Wednesday, March 4, 2009

Taxing Talk

Explaining the Obama budget plans doesn’t get easier when you have people who don’t understand it try to explain it. Steve Benen explains:

ABC News found wealthy Americans in the top 2% of wage earners who are, believe it or not, actively trying to figure out how to lower their income. Apparently, these folks have heard that President Obama wants to raise taxes on those who make more than $250,000 a year, so ABC spotlighted some of these folks who are seemingly desperate to get to below the threshold.

One lawyer in Louisiana said, “We are going to try to figure out how to make our income $249,999.00…. We have to find a way out where we can make just what we need to just under the line so we can benefit from Obama’s tax plan. Why kill yourself working if you’re going to give it all away to people who aren’t working as hard?”

As Jon Chait notes, this lawyer needs to go back to law school and take the class that covers tax law. And be sure to take notes this time.

Now, the obvious here is that the tax code doesn’t work that way. A tax increase effects the marginal dollar that a person gains. That’s means only every dollar over $250,000 is taxed at a higher rate. Obama is not proposing a tax system whereby somebody who goes from $249,999 to $250,000 suddenly becomes poorer. Nobody has ever enacted a tax hike like that in the history of the United States.

Or, put another way, lowering your income to below $250,000 would result in lower after-tax income. Which is exactly what you don’t want to have happen. But then, if you’re that rich and can’t find an accountant — or an hourly employee at H&R Block — who can explain it to you, you don’t deserve to be that rich.