Tuesday, June 10, 2008

The rich and their tax cuts

It is quite odd, though not entirely surprising, that presidential candidates rarely shed light on the reality of income taxes. The Republican Party places an impenetrable shield of populism in front of themselves by broadly proposing lower taxes. The Democratic Party struggles to make their message resonate by virtue of complexity-i.e. suggesting more segmented, nuanced tax proposals. The reality, that the American people deserve, is that the wealthiest Americans pay a fairly low percentage of their wealth, one that has only been lower 16 out of the last 95 years of income taxation. At one time the wealthy were taxed on their top dollar at obscene rates such as 90%. I may not agree with trickle-down economics, but I know that anything higher than 70% is going to put a serious hurt in one's economy. But this isn't the entire picture. The entire dilemma rests not as much on the fact that the wealthy pay so little, but that we define the wealthy in very different ways than we used to. In 2008, if you make $212,000 annually, you are not wealthy. You are well-off. You are riding the edge of the upper middle and upper class. You still have to make sacrifices to send your children to college, to save enough to retire. You are quite different than those who make, say, 5,000,000 annually. Yet you pay the same percentage rate. Somewhere along the line, we simplified our tax code, making it so that those who most would consider middle class were actually being taxed higher than before, and those who were ultra-rich were paying the same as those who were well-off. The Democratic Party needs to tell the truth to the upper middle class. They need to show them that they are getting the short straw. Then the Democratic Party needs to talk to the working and middle classes, explaining how they have been duped by such simplified rhetoric. If Dems want to stand a chance of winning the rust belt for years to come, they really must use a firm, directed approach at economic populism to rally the working class vote. For Republicans, they may as well continue what they are doing. It has worked since Nixon and Reagan...somehow.

1 comment:

GBarr said...

I know this is old, but I just had to comment. $312,000 is wealthy in my book. Even if you send your kids to the most expensive colleges, that's still only $50,000 a year. So, you're left with a measly $262,000. Even if you have three kids in college (a rare feat), you're left with $162,000. That's enough for quite a few Bermuda vacations.

Now, if the gov't were to take 70% of your income, and you were left with 100g's, then I might agree that you were merely well-off and not wealthy.

Also, why is 70% the magic tax rate? What actually matters is the marginal tax rate. So, if everyone is paying 70%, then you might as well make as much as possible. But if making more money will increase your tax rate (i.e. you have a high marginal rate) then you have an incentive not to earn that much. So, if everyone below a certain point were paying 25% and everyone from that point on were paying 30%, then that marginal tax rate can hurt the economy. It doesn't need to go up to 70% do some hurtin'. (Btw, the 70% figure you are hearing probably means the highest marginal tax rate. People weren't paying 70% on everything, just everything over a certain amount.)

Now, whether or not the hurt is worth it is another question. (I say sometimes yes.)

Another disincentive: if rich people anticipate a tax increase coming, they have an incentive to retire before the increase and get there fat retirement bonuses sooner rather than later. This is precisely what we are seeing at the moment among some middle-aged/old rich people.

Just my 2 cents.