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Home Publications Blogs Beat the Press Nate Silver Comes Through on Taxes

Nate Silver Comes Through on Taxes

Tuesday, 27 November 2012 04:48

Both the NYT and Washington Post reported on a tax proposal from Republicans which could lead to a large tax increase on the slightly rich, while leaving the very rich little affected. The proposal would have the lower tax brackets (e.g. the 10 percent rate on the first $20,000 of income and the 15 percent rate on income between $20,000 and $70,000) phased out for households with incomes above $250,000.

Remarkably, neither paper pointed out to readers that this proposal would imply a substantial increase in marginal tax rates for those in income range where these lower tax rates were being phased out. This omission was striking both because of the policy and political implications of the proposal.

On the policy side it would mean that most of the people seeing higher tax rates would be subject to a higher marginal tax rate. (The phase out of the lower brackets is the same thing as a higher marginal tax rate.) While neither article mentioned the range over which the phase out would occur, the vast majority of the people over the $250,000 threshold earn an amount near this threshold. This means that if the phase out ended at $750,000, or even $500,000, most of the people facing tax increases would be in the bubble range facing the higher marginal tax rate.

Insofar as we are concerned about the disincentive of higher marginal tax rates, we should want to see as few people as possible subject to higher rates. This policy would cause a large number of the slightly wealthy to face a higher marginal tax rate.

The politics of this proposal are even more striking. The Republicans had highlighted the fate of small business owners who they like to call "job creators." This policy would imply a higher tax rate on the vast majority of the job creators, while leaving the very rich little affected, since their income would place them well above the bubble cutoff. This proposal would seem to imply that the Republicans were willing to nail the job creators to benefit the very wealthy.

Readers of the NYT and Post might have missed this basic fact, but fortunately Nate Silver came to the rescue. He carefully explained the basic story to readers in his blog this morning.

Comments (11)Add Comment
Effective Tax Rates vs Marginal Rates
written by Robert Salzberg, November 27, 2012 4:33
The deeper stupidity is that Republicans have latched onto fighting President Obama's proposal to let the top marginal tax rates return to Clinton Era levels and argue that rate increases are out.

Can anyone think of a reason besides just opposing everything President Obama proposes for Republicans to now embrace tax increases but oppose marginal rate increases?

Nate Silver has pointed out the hypocrisy of the Republican position that says increasing marginal rates is out by increasing actual effective rates is OK.

written by JDM, November 27, 2012 5:50
They're trying to get outrage from these people working for them. Right now a great many of those making over $250,000 net have had a chance to absorb the fact that raising their top marginal rate would have little effect on them. The only outraged ones therefore are those who don't understand marginal rates. The others aren't so outraged about higher tax rates for the rich. The GOP wants more to get back those outraged high earners so they'll rail against tax increases.

So they put forth this proposal to rope them back into the outrage camp. I hope people see through this blatantly dishonest and cynical tactic.
Behind the Bubble
written by Bart, November 27, 2012 6:16

I'm guessing the GOP is pushing this scheme because most of their campaign cash comes from those wealthier than the cohort subject to the bubble.
2 Obama proposals to increase taxes without touching top marginal rates ignored by Republicans
written by Robert Salzberg, November 27, 2012 6:22
Does anyone else find it strange that Republicans appear to be searching high and low for more revenue without raising top marginal rates while ignoring President Obama's proposals to end the carried interest loophole and cap the value of itemized deductions at 28%?
written by liberal, November 27, 2012 8:03
Bart wrote,
I'm guessing the GOP is pushing this scheme because most of their campaign cash comes from those wealthier than the cohort subject to the bubble.

Yeah; this is by far the most likely explanation.
written by skeptonomist, November 27, 2012 8:36
At this point the whole discussion is unreal; proposals like this can't be intended to be taken seriously. Apparently Republicans are just throwing out garbage to improve their bargaining position and confuse the issue in the minds of the public. Too bad Democrats in power - especially Obama - aren't taking correspondingly "extreme" positions, such as making all income subject to income-tax rates, that is ending special rates for capital gains and dividends, or adding non-wage income to SS taxes.

Big-money backers of Republicans have three main goals: preventing increase of their tax burdens or keeping such increases to a minimum; cutting SS expenditures and preventing payout of the SS Trust Fund; and preventing takeover by the government of any aspects of health care. Reducing deficits has never been a real goal. If Republicans can't make progress on their real goals they will probably agree to kick the can down the road again, with a few token "reforms", on the whole not the worst outcome.
written by liberal, November 27, 2012 9:05
skeptonomist wrote,
...that is ending special rates for capital gains and dividends, or adding non-wage income to SS taxes...

In today's dead-tree edition of the WaPo, there's an article on the Simpson-Bowles "report" (they bury and obfuscate the fact that there was no report). IIRC it alluded to the "report's" recommendation that dividend/cap gain taxes be slashed.

WTF does anyone take that "report" seriously?

Adding non-wage income to SS taxes: I don't understand the liberal/left desire to extend the SS wage cap and leave other "income" alone.
AMT, anyone?
written by Downpuppy, November 27, 2012 9:15
Since most people with taxable income in the $250-400,000 range are subject to AMT, I'd like to see that included in the calculations. Too much to hope for?
written by ComradeAnon, November 27, 2012 9:29
And Saxby Chambliss is revealed for the fake that he is.
Protecting the "Simply" Rich
written by Frankly Curious, November 27, 2012 3:20
It seems to me that this is pretty much the way things already are. I'm not going to shed tears for the "simply" wealthy, but they do tend to pay much higher (double) the rate that the very wealthy pay. I really don't understand our societal acceptance of all manner of regressive taxes--especially on the federal level where there is no reason.

More in depth confusion here: Protecting the "Simply" Rich

It isn't surprising to me that the Republicans only really care about the 0.1% rather than the whole 1%. Or 53% if you want to be really generous.
written by Kate, November 28, 2012 9:49
Nate Silver needs to co-opt himself into economics more often. His name is the only one that pretty much anyone will buy right now.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.