Monday, May 16, 2011
Via Maggie's Farm, an interesting history, from the New York Times, no less, on the history of the use of $250,000 in annual income as the dividing line between the "rich" and everybody else. Two bits jump out.
$250,000 isn’t what it used to be. If Mr. Obama were really trying to return to Mr. Clinton’s 1993 levels, he would have to adjust the bracket for inflation, moving it up to about $386,075. In fact, in Mr. Clinton’s last year in office, the top bracket had risen to $288,350 from $250,000.
Right. If you hear anybody describe the Obama administration's proposal as merely a repeal of the "Bush tax cuts" following the Clinton years, they are not telling the truth. Remember that.
Then there is this much more common mistake:
Right after World War II, the highest rate was roughly that. Indeed, for most of the 1950s, ’60s and ’70s the highest rate was about 70 percent. Even under President Ronald Reagan in 1986, the highest rate was 50 percent.
This is all factually true, but it omits a critical point, which is that nobody actually paid those high rates. Why? Because tax shelters, which allowed massive deductions for passive losses against ordinary income, were lawful and widespread. Reagan's tax reform quite sensibly outlawed shelters, but in return the top rate came down to 28 percent. Point is, returning to these same high rates (which, when combined with state and local taxes is possible under at least some of the administration proposals -- see the linked article) is not a reversion to the post-war regime unless we also get back the full deductibility of passive losses. While I believe that would be a terrible public policy, if one is going to cite history as precedent intellectual honesty requires that one cite all the history.
"If you make less than $250,000 I won't raise your taxes one dime!"
$250,000 is Obama's current BS rhetoric. With our current spending trajectory, we can't come close to balancing the budget long-term by raising taxes on the "rich" however defined. They don't show enough 1040 income. Raise rates enough and they'll show even less.
The sweet spot for a revenue raise are those from $150,000 to $250,000 but if you take 70% of what they show over a $100,000 threshold on a 1040 (mostly W-2), you still don't raise enough.
You can hit them both and still not raise enough.
I've always thought that was the plan. Socialism imposed through the Internal Revenue Code.
"Reagan's tax reform quite sensibly outlawed shelters, but in return the top rate came down to 28 percent"
How about "outlawed a lot of shelters, not all of which are necessarily bad". It remains true that for the extremely wealthy, the legal definition of taxable income has more effect on the tax they pay than marginal rates.