Wealthy Idiots Meet Idiot Reporter

This is the funniest thing I’ve read in a while, and I’ve read some downright hilarious right-wing economic arguments in the last couple of weeks.

President Barack Obama’s tax proposal – which promises to increase taxes for those families with incomes of $250,000 or more — has some Americans brainstorming ways to decrease their pay, even if it’s just by a dollar.

An ABC.com reporter who doesn’t understand how income taxes work finds rich people who don’t know either and makes a story out of it.

A tax hike on incomes over $250,000 would only apply to the amount of a person’s income that exceeds $250,000. Thus, if the rate of income tax on income over $250,000 is raised from 34% to 39% (as proposed by Obama, restoring the rates in effect during the 1990s), the 39% percent rate only applies to income over $250,000, not the income up to $250,000. Lowering your income below $250,000 doesn’t net you more money — you’d still get to keep 61 cents of every dollar you make over $250,000. Every extra dollar you make adds to your income, no matter what your tax bracket. It’s elementary school math.

  1. #1 by Becky on March 3, 2009 - 1:32 pm

    That is funny, Richard. And really, if that lawyer does decide to give up a few clients in order to reduce her income, what will be the harm? There’s a glut of hungry young lawyers and she would help out by spreading some of that work around. A bonus for the economy.

  2. #2 by Cameron on March 3, 2009 - 4:25 pm

    • #3 by Becky on March 3, 2009 - 9:10 pm

      Cameron,

      You might want to read further. See Glendon’s latest top post and the link therein.

  3. #4 by Larry Bergan on March 3, 2009 - 7:11 pm

    “Why kill yourself working if you’re going to give it all away to people who aren’t working as hard?”

    I can almost hear the sound of the whippoorwill.

  4. #5 by Don on March 3, 2009 - 11:17 pm

    “I’ve put thought into how to get under $250,000,” said Poczatek. “It would mean working fewer days which means having fewer employees, seeing fewer patients and taking time off.”

    “Generally it means being less productive,” she said.

    Poczatek argued that by reducing her income from her current $320,000 to under $250,000 by having her dental hygienist work fewer days and by treating fewer patients, she would avoid paying higher taxes on the $70,000 that would be subject to increased taxation if Obama’s proposal is signed into law.

    Really? Apparently the idea of reducing her income by paying her employees more or even hiring another employee didn’t cross the poor lady’s mind.

  5. #6 by Cameron on March 4, 2009 - 7:53 am

    Becky, I’m not sure what that link has to do with marginal tax rates?

  6. #7 by Becky on March 4, 2009 - 8:15 am

    Read the article. It explains not only the problem with Mankiw’s post, but his acknowledgment of the same.

  7. #8 by Cameron on March 4, 2009 - 9:31 am

    That article does not discuss the post I linked. The post I linked was from last year and was a real world example of marginal tax rates creating a disincentive to produce.

  8. #9 by Becky on March 4, 2009 - 10:15 am

    Oh you’re right Cameron. That link refers to a different Mankiw post. However, re the disincentives, unless you are in a 100% tax bracket, and no-one is, the more you make, well the more you do make. If people would rather work less and make less, more power to them. Many of us aren’t lucky enough to even have such an option. How about you Cameron, are you thinking of working less so you can pay less in taxes?

  9. #10 by Cameron on March 4, 2009 - 12:14 pm

    Marginal tax rates causing a disincentive to produce is a pretty standard economic principle. Here’s another explanation to clarify.

    At some point, producers stop producing because it is no longer worth the time, resources, etc in order to get an ever decreasing gain.

    But it’s not just a phenomenon that affects high income earners. At certain low income levels a household can obtain housing, food, health care, and even cash (in the form of refundable tax credits). But once that household moves slightly above that income level, most or all of those benefits vanish. There is clearly a disincentive at work there.

  10. #11 by Kevin Owens on March 4, 2009 - 3:06 pm

    Sure, welfare cutoff levels definitely produce an incentive to earn less. Marginal tax rates, though, probably only disincentivize the wealthy.

  11. #12 by Cameron on March 4, 2009 - 5:00 pm

    Marginal tax rates, by their very nature, disincentivize any income level where they exist.

  12. #14 by Cameron on March 5, 2009 - 10:19 am

    Becky, the premise makes sense to your blog authors.

    So raising or lowering tax rates isn’t just a question of “fairness.” It’s also a question of what’s good for the economy. If tax rates are too high, they could, in theory, give people less motivation to work hard and thereby to make the economy grow. What tax level constitutes “too high,” though, is debatable.

    As I said, it’s a pretty basic economic principle. And as the NY Times bloggers write, reasonable people can disagree over how high of a marginal rate is too high, but the disincentive to produce is reality.

  13. #15 by Richard Warnick on March 5, 2009 - 11:12 am

    Cameron–

    How many people who get paid $250,000 a year or more “work hard,” and how many are making easy money?

    President Obama will be cutting taxes for families making up to $150,00 a year.

    In fact, 95 percent of taxpayers are getting a tax cut. Why are Republicans whining about tax increases?

  14. #16 by Shane Smith on March 5, 2009 - 11:35 am

    “In fact, 95 percent of taxpayers are getting a tax cut. Why are Republicans whining about tax increases?”

    Oh! I know! Call on me!

    *waves hand wildly*

    Because they work for the other 5%, and the majority of republicans are just too stupid to understand that they are voting for people who are screwing them over.

  15. #17 by Bob S. on March 5, 2009 - 12:24 pm

    Shane,

    How can people who get back more then they pay in for federal income taxes be getting a “tax cut”?

    During 2006, Tax Foundation economists estimate that roughly 43.4 million tax returns, representing 91 million individuals, will face a zero or negative tax liability. That’s out of a total of 136 million federal tax returns that will be filed. Adding to this figure the 15 million households and individuals who file no tax return at all, roughly 121 million Americans—or 41 percent of the U.S. population—will be completely outside the federal income tax system in 2006.1 This total includes those who pay no tax, and those who pay some tax upfront and are later refunded the full amount of the tax paid or more.

    So, how can you give a tax cut to people who effective don’t pay taxes or get more back then they pay in?

  16. #18 by Shane Smith on March 5, 2009 - 12:53 pm

    Bob, linguistics aside, you will notice I hope a few minor issues. First, quoting the tax foundation is not all that impressive.

    But the picture the Tax Foundation’s reports portray — that the tax burden on the average family is exceptionally high and has been rising — is not accurate. The Tax Foundation’s methodology substantially exaggerates the amount of taxes that typical or average middle class families pay. Under the methods the Tax Foundation uses, an increase in taxes solely on high-income taxpayers is pictured as increasing the taxes the average taxpayer pays. This methodology can produce particularly sharp distortions when taxes are raised primarily on affluent taxpayers, as they were under the 1990 and 1993 deficit reduction laws, and when, as at present, large increases in the stock market cause wealthy investors to reap huge capital gains profits and pay more capital gains taxes on them.

    The Tax Foundation’s methodology errs in other serious ways as well. For example, it counts as taxes items that clearly are not taxes, such as the optional premiums elderly and disabled people elect to pay for physicians coverage under Medicare. Of further concern, the Tax Foundation fails to count as income some of the income on which the taxes it counts are levied. For example, it counts capital gains tax payments as taxes but fails to count as income the capital gains income on which these taxes are levied. The methodological errors the Tax Foundation commits all distort its figures in the same direction — they all make taxes look higher than they actually are.

    The tax burdens that the Tax Foundation says the average family bears are much higher than the estimates of the Congressional Budget Office and the Congressional Joint Committee on Taxation, authoritative institutions headed by Republican appointees. Data from CBO and the Joint Committee on Taxation indicate that for families in the middle of the income scale, federal tax burdens are neither at an all-time high nor increasing.

    And yet, now that they want to change the tenor of the complaint, suddenly half the country doesn’t pay taxes!

    Lies, damn lies, statistics.

    As it has annually for several years, the Tax Foundation has attempted to measure the current impact of state and local taxation on the residents of each of the 50 states. And once again, the results are very different from the Tax Foundation’s own previous attempts to do this calculation. The Tax Foundations figures — both the national aggregates and the rankings for individual states — differ markedly from the estimates released in 2007, which in turn were very different from the estimates in previous years.[1] The fact that the Tax Foundation revises its results with such frequency calls into question how robust its methodology is — and how seriously the estimates should be taken.

    In fact just a year after the report you quote, where the half country pays no taxes, they found that taxes where at an all time high! Which they revised 6 months later. And again 3 months after that.

    The Tax Foundation further continues to blur the actual data with extensive adjustments made by the Tax Foundation that are supposed to reflect the extent to which one state’s residents pay taxes to other states. (The methodology behind these projections and adjustments is described in a separate new paper on the Tax Foundation’s website. There is no evidence that this methodology has ever been formally submitted to outside review, and the paper confirms the extent to which the Tax Foundation’s model uses a range of data sources, very few of which are up-to-date at the state or local level through fiscal year 2008. [4]) Although these adjustments have a conceptual basis, they introduce yet another source of uncertainty.[5]

    In short, both historical examples and common sense tell us that the Tax Foundation figures for state and local taxation are likely to turn out to be wrong, and therefore should not be relied upon.

    How can you have any clue who gets a tax cut if you just make up the numbers to fit your days talking points?

  17. #19 by Bob S. on March 5, 2009 - 1:25 pm

    Regardless of how many people it actually is, can’t you agree that there is no way that 95% of the people are getting a tax cut….because X percentage of those people aren’t paying federal income tax?

    Isn’t it a lie (using statistics?) to continue to insist that 95% of the people are getting a tax cut, if more then 5% of the people don’t pay taxes?

  18. #20 by Anonymous on March 5, 2009 - 1:56 pm

    Bob S.–

    Ever hear of refundable tax credits?

  19. #21 by Buffy on March 5, 2009 - 2:00 pm

    Just more of that “poor oppressed rich people” nonsense.

  20. #22 by Richard Warnick on March 5, 2009 - 2:05 pm

    Bob S.–

    The “anonymous” above was me, One Utah had a glitch. I should mention that the AP article I linked to in my reply to Cameron above mentions the refundable tax credits now being proposed in President Obama’s budget.

    [M]illions of Americans who don’t make enough money to pay federal income taxes would receive government payments at tax time through refundable tax credits.

    A typical family of four making $50,000 a year would receive a payment of $40, according to the Deloitte analysis. Before the stimulus package was enacted, that same family would have owed $760 in federal income taxes.

    A similar family making $35,000 a year would get a payment of $4,100, an increase of $1,200. The median household income was $50,233 in 2007, according to the Census Bureau.

  21. #23 by Cameron on March 5, 2009 - 3:02 pm

    Richard,

    Your comment doesn’t address the point that too high marginal tax rates can harm the economy. It doesn’t matter if someone is “working hard” in this scenario – though you reveal an interesting insight into your line of reasoning. What ultimately matters is if producers stop producing because it simply is no longer worth the effort and risk.

    The NY Times’ econ bloggers – who, as Becky pointed out, agree with you on increasing taxes on the rich – recognize the reality of marginal taxes. They just differ on how high is too high.

    The point is that once that too high threshold is reached, the economy suffers. Therefore, high marginal tax rates = bad economy.

  22. #24 by Richard Warnick on March 5, 2009 - 3:07 pm

    Cameron–

    You have a nice theory, but have you forgotten that marginal tax rates for rich people were higher than now during economic booms?

    Do you dispute the fact that the Obama administration is in fact proposing massive tax cuts for the vast majority while only raising rates on incomes above $250,000?

  23. #25 by Kevin Owens on March 5, 2009 - 3:08 pm

    If we increased the marginal tax rate to 99%, that would definitely dissuade people from being more productive. But I doubt there’s going to be much of a difference in increasing the marginal rate from 36% to 39% for households making more than $250,000.

  24. #26 by Cameron on March 5, 2009 - 3:42 pm

    Richard,

    It’s not my theory.

    As for the tax cuts, Obama is simply continuing and extending the tax code changes that President Bush started. Bush took Clinton’s tax rates and lowered them drastically – for those on the lowest end of the income scale. Especially all those refundable tax credits you’re cheering about. In fact, I wrote about that here a few posts back. The child tax credit was doubled, the earned income credit increased, personal exemptions, etc. It was Bush’s tax cuts that resulted in millions of people paying zero tax and getting thousands from the government. The other result of that is that the top 50% of taxpayers pay 97% of the total tax.

    Kevin,

    How about 90%.

    Also, it’s not just a top rate going from 36 to 39%. It’s an array of taxes. Here’s an example.

  25. #27 by Kevin Owens on March 5, 2009 - 3:53 pm

    Cameron,

    Yes, 90% would also be too high. I’m glad it’s just a crazy democratic state legislator in California who is proposing it, because it would be a disaster.

    I agree with you that the tax changes should be looked at holistically. It’s not enough to only look at the income tax.

  26. #28 by Richard Warnick on March 5, 2009 - 4:01 pm

    Just a point of information. The top marginal income tax rate in this country has been above 90 percent, and the world did not come to an end. It was 70 percent at the start of the Reagan administration.

  27. #29 by Frank Staheli on March 5, 2009 - 4:49 pm

    Richard,

    Yes, “the world did not come to an end”, but a 90% top marginal rate helped prolong the depression.

    The marginal rate might have been 70% at the start of the Reagan administration, but the beginning of the Reagan administration coincided, quite coincidentally, with the ending of the Carter administration.

    ;-)

  28. #30 by cav, on March 6, 2009 - 12:21 am

    Maybe the Reaganite destruction of the progressive tax code was the cause of the destruction of the somewhat sane and regulated corporate business model, with the greed and ever-nearing profit horizon. When people can take the loot out of the corporation, the incentive is to loot the company, even to the point of ripping the retirement funds of those who produced the shit the company sold, anyone who might be tempted to buy such shit, and the community at large, who were expected to suffer the ‘off-budget costs, such as our fowled environment. You know, the seed stock of the Bush administrations.

    I didn’t like Ronnie for other reasons as well, but there is that.

  29. #31 by Richard Warnick on March 6, 2009 - 8:14 am

    I’m just saying, people who are freaking out at the thought of raising the top rate from 36 to 39 percent ought to get a grip.

  30. #32 by Shane Smith on March 6, 2009 - 8:21 am

    Be nice cav, you didn’t like Ronnie? I am pretty sure he died before he was elected.

    You ever notice you didn’t ever see Nancy drinking when he was talking? But sometimes you could see her lips move?

  31. #33 by Cameron on March 6, 2009 - 8:30 am

    It’s not just the very top rate.

  32. #34 by Richard Warnick on March 6, 2009 - 8:54 am

    Well, Cameron, thanks to what the Bush administration and their friends in Wall Street did to our economy, does anyone have to worry about taxes on capital gains, dividends, etc.? I sure don’t.

  33. #35 by Cameron on March 6, 2009 - 9:31 am

    Then why tax them?

  34. #36 by Kevin Owens on March 6, 2009 - 9:37 am

    Unearned income (capital gains, etc.) should be taxed at a higher rate than earned income (labor), because earned income is more useful to the economy. It’s more productive.

  35. #37 by Richard Warnick on March 6, 2009 - 9:42 am

    I guess the point is, that when former President Herbert Hoover or any other Republican (e.g. John McCain last year) talks about cutting capital gains taxes, taxes on corporate profits and so forth in a recession/depression, they are blowing smoke. Capital gains and profits are almost nonexistent, so the rate of taxation on them is supremely irrelevant.

  36. #38 by Cameron on March 6, 2009 - 10:03 am

    Unless it means making investment – ie. capital gains – more attractive, thereby stimulating the economy.

  37. #39 by Richard Warnick on March 6, 2009 - 10:22 am

    Lowering capital gains taxes might also cause people to decide it’s a good time to sell some long-term investments while they are still profitable, driving the stock market to new lows.

    Once again, some perspective:

    Currently, capital gains are at historic lows… The tax appeal of the long-term capital gain tax rate is that it is generally much lower than what you pay on your regular income.

    Most investors will see their long-term gains taxed at 0-15 percent. That’s right, it’s already zero for people in the lower tax brackets.

  38. #40 by Cameron on March 6, 2009 - 10:38 am

    So Bush made investing attractive to low income earners. Good for him.

    As for the sell now theory, I doubt there are too many investors taking profits right now. Especially since,

    thanks to what the Bush administration and their friends in Wall Street did to our economy, does anyone have to worry about taxes on capital gains

    At best, investors could sell off loser stocks to lock in losses as a way to cut their tax bill.

    However, raising taxes could provide a disincentive to new capital. Hence the marginal tax rate discussion.

  39. #41 by Richard Warnick on March 6, 2009 - 10:55 am

    Of course, the Obama administration proposal is to raise the capital gains tax from 15 to 20 percent for households in the $250,000 and up bracket. Former President Ronald Reagan inherited a 20 percent capital-gains tax rate, then raised it to an effective rate of 28 percent for high-earners.

    Obama is being nicer to the rich people than Reagan was.

    Also, a point that can’t be made often enough:

    By the way, Obama is not actually raising taxes. He’s letting George W. Bush’s tax cuts expire. Bush and Congress could have made them permanent but did not. The legislation purposely canceled the cuts after 10 years to hide their enormous long-term cost.

  40. #42 by Frank Staheli on March 6, 2009 - 12:17 pm

    Richard,

    Just the Bush administration and their cronies on Wall Street? You are correct that Bush has cronies, but I thought you were above the knee-jerk partisan political fray (at least you seem to have been on other issues). There are just as many Democrats with Wall Street cronies, and I’m disappointed that you won’t admit that. It’s not a Republican/Democrat thing. It’s an Establishment/Constitution thing. Of those Republicans AND Democrats who voted for the bailout, according to Thomas Woods’ new book “Meltdown”, they received a FAR HIGHER percentage of their campaign contributions from Wall Street types than those who voted with integrity against it.

  41. #43 by Richard Warnick on March 6, 2009 - 12:38 pm

    Hi, Frank. The Bush administration had far more friends on Wall Street (“cronies” is your word, but if the shoe fits…) than the Democrats. The Bush administration caused this economic crisis by deregulation of financial markets.

    I wasn’t talking about the bailout for billionaires– not the subject of this post. Nobody should have gone for that, but like the Iraq AUMF Congress was induced to vote on it right before an election. Not a time to expect good legislation from either party.

  42. #44 by Frank Staheli on March 6, 2009 - 1:17 pm

    I agree that it was a bad time to vote on either of the issues you discuss (AUMF, bailout). Cronies is my word, and I think it’s a good one ;-) because the shoe fits both parties. Follow the campaign money–the Barney Franks and Chris Dodds of the Establishment world are as big of whores as the John McCains and the John Boehners.

    I agree with you as well that deregulation is the problem. But about 1 in 100 are able to see exactly WHICH deregulation is problematic. The Federal Reserve is the elephant in the room that has broken the chandeliers, all the china, and nearly all of the furniture, and STILL hardly anyone wants to talk about them being the fundamental problem.

    Yes, Bush is to blame. But Obama is quickly carving his name in the tree trunk of U.S. economic blame history as well. With a “deregulated” Federal Reserve running as amok as it wants to, it is more than silly to blame the current economic problems on the supposed “free market”.

  43. #45 by Richard Warnick on March 6, 2009 - 1:30 pm

    Yes, there’s a lot we agree on. Fed Chairman Alan Greenspan promoted the deregulation of derivatives, which is the key the the entire market collapse.

    Warren Buffett presciently observed that derivatives were “financial weapons of mass destruction.”

    I know you’re really anxious to blame things on President Obama, but you’ll have to give him some time to at least staff up the Treasury Department first.

  44. #46 by Richard Warnick on March 6, 2009 - 2:04 pm

    Getting back on topic. The right-wing now has a term to describe what the wealthy idiots are talking about: “going Galt.”

    Until recently, I thought Ayn Rand hero John Galt had been mercifully forgotten.

    • #47 by Becky on March 6, 2009 - 2:33 pm

      I liked the link, Richard. This sort of says it all:

      I love the premise of this argument, immensely. Let’s see. “Listen up, America! I will PRODUCE if you give me $350 an hour. But if it’s $320 an hour, you can forget it!”

  45. #48 by Richard Warnick on March 6, 2009 - 2:39 pm

    I liked the part about wealthy people talking about spending more time playing golf. Headline: “Rich Republicans Threaten Retreat to Country Clubs.” More like a dream come true for the rest of us.

  46. #49 by Cameron on March 6, 2009 - 3:03 pm

    You’re just playing a semantics game with the “let them expire” shtick.

    And it’s cute that you write that Obama is nicer to rich people than Reagan was, but it’s meaningless not only because you’re lying but because it’s not true.

    Reagan didn’t inherit 20% capital gains rates, they were over 30% throughout the 1970s. He lowered it to 20% in the early 80′s – during a recession. Then they were raised in 1987. Shortly thereafter (coincidentally?) we entered another recession. President Clinton cut them back to 20% in the mid to late 90′s. Shortly thereafter (coincidentally?) the stock market saw huge investment. The same thing happened in the 2000′s when President Bush cut them to 15%.

    But it still seems like you’re missing the point of all this. You can make fun of going Galt and country clubbers all you want. But the reality is that if marginal tax rates are high enough to stop investment, the entire economy suffers.

  47. #50 by Richard Warnick on March 6, 2009 - 3:12 pm

    How about this: On January 1, 2011, George W. Bush is going to raise income taxes on rich people.

    Cameron, I gave a link to the source for my information. Where did yours come from? Why do you think a 3 percent increase in taxes on 2 percent of taxpayers is “high enough to stop investment”?

  48. #51 by Cameron on March 6, 2009 - 5:00 pm

    here, here, here, here, and here.

    Reagan inherited higher capital gains tax rates and lowered them in the early 80′s. Congress then raised them in 1987 to match the highest income tax bracket.

    Raising capital gains taxes from 15 to 20 isn’t a 3% increase. Neither is an increase from 15 to 20 on dividends. Nor is the increase in payroll taxes. But we’ve gone over that already.

    It just doesn’t make a lot of sense to discourage investment during a time when people are hesitant to invest.

  49. #52 by Larry Bergan on March 7, 2009 - 2:41 am

    Here are some other very funny stories about the plight of the rich.

    I don’t know why I can’t link to this or even find it on the online version of Friday’s Tribune, but they had an article entitled “Philanthropists say Obama’s tax proposal could cramp their style”. It includes the paragraph:

    Under [Obabma's] plan, a donor in the highest tax bracket would save $280 on a $1000 dollar charitable deduction, instead of $396.

    So, it looks like the philanthropists are going to stop philanthropising now.

    But even funnier is Cal Thomas’s column in the same issue, which the Tribune entitles “Soaking the rich ends up hurting the middle class”. Almost sounds like a threat, but so does the article which says:

    Class warfare costs, but not the people at whom the rhetorical mortars are aimed.

    The drumbeat of anger by the many at the few who travel on private planes and live in big houses is having a negative effect on those who don’t.

    USA Today recently carried a story about conventions that have been canceled, at least in part, due to the public’s negative reaction to seeing some people having a good time while they are not. Management fears condemnation from the public, so they cancel meetings rather than risk negative media attention and public scorn.

    This might make some of the enlistees in the class war feel good for the moment, but it does not improve their station in life. It is not the rich who suffer in this war. It is the middle class.

    The envious mobs shall have their reward!

    Hows that for a threat!

  50. #53 by Larry Bergan on March 7, 2009 - 2:48 am

    YES! Let the war commence!

    ONWARD, MEN, but first I have to get my car inspected so I know how much money I’m going to have.

  51. #54 by Frank Staheli on March 9, 2009 - 8:25 am

    Richard,

    I’m happy to see that you agree with me that Alan Greenspan is a buffoon.

    I’m not anxious to blame things on Obama, other than the fact that he ought to have a bit more integrity than to carry on similar policies to the ones that failed in the Bush administration. Time will tell whether Barack Obama will belong to the Economic Idiots club, whose most recent inductees include George W. Bush, Ben Bernanke, and Henry Paulson.

    These people (and Obama seems to be cut from the same cloth–but is he just a puppet?) are equivalent to the guy who takes a cup of water from the deep end of the swimming pool and dumps it into the shallow end, thereby expecting the level of the pool to rise. Such are the successes of the bailouts and stimuli.

    Don’t look now, but your 401k has lost yet more money this morning.

  52. #55 by Richard Warnick on March 9, 2009 - 8:55 am

    Frank–

    What do you think about the GOP-proposed federal spending freeze? What would that do to your swimming pool?

    I am so not looking at my 401(k).

  53. #56 by Kevin Owens on March 9, 2009 - 10:47 am

    The economy would actually be better if the rich had less incentive to work, because it would give those opportunities to the middle class instead, thus expanding it. The demand for production will still exist, so if the top producers start producing less, that just gives the rest of us a chance to get in on the action.

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