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Friday, June 13, 2008

Obama at the margin 


Barack Obama plans to impose the 6.2% payroll Social Security tax on wage income over $250,000. I am blessed and grateful to earn more than that amount, but it does mean that the aggregate marginal tax rate on my wage income -- 35% federal income tax, 8.97% New Jersey income tax, 6.2% Social Security tax, and 1.45% Medicare tax -- would then exceed 51%. This is without taking into account Obama's plan to repeal the Bush tax cuts (which would move the federal income tax rate from 35% to 39%) or the impact of the higher Social Security taxes on my employer. By the time he is done the taxes on my wage income at the margin will be well north of 55%, again excluding the impact on my employer.

I can already sense my ambition draining away.


12 Comments:

By Anonymous Anonymous, at Fri Jun 13, 02:31:00 PM:

Move to nearby Pennsylvania, at least, for several reasons:

1. Lower state income tax (2.8%).
2. Your red-state voting habits might actually help get a Republican elected, even in increasingly Democratic Bucks County (now populated by some hypocritical New Jersey refugees who left NJ because of the bad tax situation but somehow still vote Democratic). Still, Pennsylvanians tend to be, overall, middle of the road.
3. We have our own sports teams and TV stations.
4. If you move to a Philadelphia suburb, the Philadelphia Inquirer will be as sure to drive you nuts as the NY Times does.
5. And a whole host of other reasons.

Well, the power to tax is the power to destroy. Atop this, Obama will surely put much more pressure on business leaders through legislation that will make your job even more taxing and less rewarding in the non-economic sense. Which is great, because this is the guy who says he can revive the economy and create more jobs.

But how is he really going to do that? And, also, what type of jobs would he be creating?

The Centrist  

By Anonymous Anonymous, at Fri Jun 13, 02:36:00 PM:

What's truly remarkable in the linked story is the simplistic argument of this Harvard Law grad that there's no reason some should pay the tax on all their income when others don't--without noting that the concept behind Social Security is that it's insurance and he sure isn't proposing a higher payout for those making over 250G. This "change you can believe in" amounts to pursuit of the same old Democratic party income income redistribution policies that one hoped had been sufficiently discredited years ago.  

By Blogger D.E. Cloutier, at Fri Jun 13, 03:28:00 PM:

U.S. Federal Income Tax Rate, Top bracket, 1954-1963, was roughly 90 percent. That's where we're headed if we elect Obama and other Democrats.

See: "Partial History of U.S. Federal Income Tax Rates Since 1913"

Link:
http://en.wikipedia.org/wiki/U.S._Income_tax
(Scroll about two-thirds of the way down the page.)

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What if you give up your U.S. citizenship?

NY Times, Dec. 2006:

"In 1996, Congress tried to address a wave of tax-driven expatriation by the wealthy by requiring former citizens to file tax returns for a decade and forbidding Americans who renounced their passports for tax reasons from visiting the United States."

Link:
http://www.nytimes.com/2006/12/18/world/18expat.html?_r=1&scp=2&sq=give+up+citizenship+to+avoid+taxes&st=nyt&oref=slogin

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You are nothing more than a slave on the U.S. Federal Government's plantation.  

By Anonymous Anonymous, at Fri Jun 13, 03:33:00 PM:

Here's something else to consider:

If you make $250,000, you'll pay a Social Security Tax of $15,500 (and, depending upon your age, you might not see any of it back). If your spouse stays at home with the kids (something the elites probably think isn't noble), you pay this full rate.

If each spouse makes $125,000 and the SS limit remains at $102,000, then the couple will pay $12,648, a family savings of almost $3,000 a year. I suppose that the Dems would say this is fair because that difference would go to pay for childcare costs.

What else will get taxed?

The Centrist  

By Anonymous Anonymous, at Fri Jun 13, 03:42:00 PM:

If your ambition is draining away, I wonder A) if someone making less money will be willing to pick up your slack to make your paycheck, and B) if you are so incredibly talented that no person could hope to fill your shoes. Isn't the competitive markets/invisible hand argument fun?  

By Anonymous Anonymous, at Fri Jun 13, 04:09:00 PM:

Anon 3:42

Bogus argument.

Obama is just showing himself to be rob the rich to give the poor kind of tax and spend guy, while decrying that people are accusing him of being so.

There are two ways to skin the budget cat - raise revenue (personal taxes are a tiny portion of that) or reduce spend. Cut out the pork that guys like BHO and HRC bring home, and cull out those living off Lady Liberty's abundant teet and find the budget to do things.

And ... the slipperly slope argument. Start at 250K, then work it down because you still don't have enough coming in to pay for the socialist programs. Eventually, it is on virtually all of us.

As for "someone picking up Jack's slack". I would gather he's damn good at what he does. Getting paid the big coin means a level of performance.  

By Anonymous Anonymous, at Fri Jun 13, 04:37:00 PM:

Let's not forget about how the AMT reduces your federal tax deductions which hurts a lot in high tax/high cost states like CA.

Discussing tax proposals like these with my 19 year old daughter is instructive. She sees how she won't get anything for her social security tax payments, and how raising taxes on earnings and savings/investments punishes those who are motivated.

So she asks with exasperation: "Why should I work hard? Just so the politicians can take my money? Don't they see the affect of their actions?"  

By Anonymous Anonymous, at Fri Jun 13, 04:42:00 PM:

Big coin can be a function of the superstar effect, which doesn't necessarily imply being wildly better than the next competitor. Tom Cruise makes much, much more than most actors, but I think few would actually claim he is better by the measure of proportion in salary. As for pork, show me any number of pork programs that cost something even in the neighborhood of the same number of orders of magnitude as our frequently advocated foreign and defense policy. These much-vaunted pork programs are so frequently brought up, (McCain claims to be able to find $100B instantaneously,) you'd think they're in a codex somewhere. I'd like to see these $100B in cuts, or something in that ballpark. Spare me the millions of dollars for X, millions of dollars for Y, as they cost me less annually than my daily coffee and I am therefore unimpressed.

As for the slippery slope, consider Weber's Law, diminishing returns, and any number of similar arguments. Having more Xs makes each X worth less, have less impact on your life, or impact your perception of the aggregate Xs less. The anecdotal example is that a 23% (or whatever number you want to use for a flat tax) of $20,000 "does much more" than 23% of $2,000,000 in terms of impacting the person's life. This is particularly clear in the extreme cases as wealth approaches abject poverty or infinity, and thus the person involved approaches death by starvation or infinite wealth; a given tax rate X will tax people making less than Y into the poor house, no matter how "equitable" such a flat tax rate might be. But examining the positive section of a hyperbolic graph makes the same point.

Consider f(x) = sqrt(x), where x >= 0. In this cheap and contrived example, we might claim that dy/dx is the marginal benefit of a xth dollar, and the value at x is the benefit gained from making x dollars. In order to distribute equal burden amongst all taxpayers, we must tax differentially, or else we take the highly-valuable first dollars from the poor while taking minimally valuable last dollars from the rich. Depending on the shape of this function, the equitable tax rate function is easily derived. If you can use the empiricism of diminishing returns and such to demonstrate that convolving the value and taxation functions for your income bracket produces an undue burden in paying your taxes, I will support you in lowering them.  

By Anonymous Anonymous, at Fri Jun 13, 04:49:00 PM:

The "My Money" argument has been a bad one from start to finish. Via magic wand, let's implement the "my money" proposal of I keep what is mine. Fair enough, you don't pay taxes, but I will choose to. Then ist will be my national security, my police force, my educational institutions, my social insurance, and for S&G's I'll take my stick and marshmallows to your house, take your stuff, and burn it down whilst making smores. Unfortunately the fire and police departments won't have much to say, as I am the one that pays them, and you'll have a tougher time geting a new house with the federal mortgage agencies not guaranteeing you. Have fun with that.

Cynicism aside, this argument is meant to point to a core philosophy of government: collective action problems. When governments are covering such problems, they are legitimate unless you have a pretty damn good reason for the contrary. If you don't like what government is doing, put forward a better plan and support candidates who would implement it. Competition in the market for political office, and such.

Unless you think perfect markets don't exist and we have to alter what we have to approximate that perfection. I wonder what institution's obligation that might be.

Also, @ slippery slope, because I forgot to mention it earlier: such marginal benefit functions specifically define the even taxation function, so there's not slippery slope. The argument homes in on a point, not a direction.  

By Blogger TigerHawk, at Fri Jun 13, 05:19:00 PM:

Anon 3:42 --

My shoes are eminently fillable in one respect, and less so in another. In certain positions, the difference between great performance, decent performance, and merely adequate can be considerable. Without characterizing my own performance in any way, most people who make a lot of money are not really doing a job in the sense of following directions. They are probably acting primarily on their own initiative within their context, and that means their relative performance has a disproportionate impact on the outcome. In addition to pride and prestige, marginal compensation influences the relative performance of at least some people.  

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By Anonymous Anonymous, at Fri Jun 13, 08:45:00 PM:

Anon, pork is pork. A hundred million here, a hundred million there. Eventually, it adds up to real money.

I'm not thrilled about our aid to dependant nations, but taxing the shit out high earners is a bad plan, and one that might sound good to a far left guy, but to me it sounds like just one more really good reason not to vote for this guy.

If we were talking about a flat tax, I'd be fine, but marginally punishing those who make themselves most valuable is bullshit.

I would submit to you that most people who make 2M a year create jobs for others, including those who are starting out, or just not committed to make themselves more valuable (the 20K guy). And most of the 2M types didn't start out there, they worked their way up, and paid their fair share.

250K just isn't that much money anymore, unless you're living in the middle of nowhere.  

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