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Home Publications Blogs Beat the Press Tax Hikes Don't Require Philosophy, Contrary to Claims in the NYT

Tax Hikes Don't Require Philosophy, Contrary to Claims in the NYT

Thursday, 30 September 2010 07:59

It might be the case that you don't need a weatherman to know which way the wind blows, but the NYT is telling us that we need a philosopher to guide our tax policy. An article on the debate over extending the Bush tax cuts told readers:

"As the political battle drags on, however, it has also veered into a more basic matter of fairness, whether a person who earns more than $200,000 a year should be taxed at rates similar to those who make $5 million."

Umm, really? Is the rate at which people are taxed, as opposed to the amount they pay in taxes, really such an important political issue? Do most people even know the rate at which they are taxed? Following the 1986 tax reform, tens of millions of middle income workers paid the same 28 percent tax rate as the very richest people in the country. There was not a big philosophical debate over this issue at that time. (We were lowering rates for the wealthy back then, not raising them.)

The more obvious issue is how much tax people will be paying. The answer for the questionably rich people who are the focus of this article (people with incomes between $250,000 and $500,000) is not very much. The Joint Tax Committee in Congress calculated that the average tax hit for taxpayers with income in this range would be $400 a year. That sort of tax hit would not seem to require very much philosophy.


Comments (13)Add Comment
ignorance is strength
written by frankenduf, September 30, 2010 8:18
"it is not fair to tax the rich"- this, to be admitted and accepted into the pantheon of Orwellian propaganda's ethical truisms
written by izzatzo, September 30, 2010 8:45
Just because stupid liberals are ignorant on Epistemological Economics doesn't mean everyone else is. Reasonable economists know that the school of positive economics includes fairness and justice of normative values, such as the egalitarian flatness of a lump sum per person cradle-to-grave tax assessed on everyone independent of income and wealth.

That way there's no marginal punishment for investing, saving, consuming or working. Just procreating. Other than Christine O'Donnell who believes that just thinking about procreating should be taxed also as a Jimmy Carter Adultry Fantasy Sin Tax, everyone agrees that a Per-Person Flat Lump Sum One-Time Tax assessed at birth is not only fair, but efficient as well in terms of optimal number of Teabaggers.
Why is this not published?
written by MightyMike, September 30, 2010 11:34
That $400 increase is a crucial piece of information. My guess was that it would be a couple of thousand dollars because people in that income range would typically have AGIs that are quite a bit lower. This $400 estimate should have appeared in the (supposedly liberal) NY Times and any other newspapaper, web site, etc. that publishes an article on this topic. We're talking roughly 1/10 of 1% of the income of these people!
written by diesel, September 30, 2010 1:31
Nevertheless, there is a philosophical problem at the center of this issue. And that is not the definition of "rich", but the definition of "poor". Once again, we are presented with an article that does not distinguish between income and wealth.

To illustrate. If a person derived an income of $250,000 per year from investments, they would be "rich". If their investments earned 5% per year, and half of that, 2.5% were reinvested to offset inflation and maintain their principle, their wealth would be twenty times $500.000 or Ten million dollars. Because they don't have to drag their sorry asses off to work but are free to spend their time and life as they choose, I call that person rich.

A dentist with four children, working 45 hours a week, making $300,000 a year is not rich. He is well off. He is a worker with a good income. He can afford a large home in a fashionable neighborhood, an upscale version of an automobile etc, but these are largely veneers. His Lexus is not a functionally better car than a Civic, and his home is built out of the same materials as one costing 1/5th as much. As his time is not his own and he is not free to spend it as he chooses, he is not rich.

No person who lacks security in the basic elements of life (food, shelter, healthcare) can be considered rich or even middle class. By that definition, most Americans are poor, they just aren't conscious of it. But during recessions , when job losses extend up into the middle class, their tenuous hold on financial solvency becomes evident. If (roughly speaking), 50% of American households "own" their homes, but only @ do so outright, then only of households truly own their homes. This is not a society of "rich" people. They are propertyless, and therefore poor (albeit well feed and complacently amused). If the average family were to pile all their household goods out in front of their domiciles and hold a garage sale, it is doubtful whether they would realize $15,000 from all their "stuff". Their "wealth" is equity in their home, their meager savings and their stake in a pension fund that is in danger of swirling down a black hole. Since none of these is sufficient to generate an income stream on which they can comfortably live, they are not free and therefore not truly wealthy.

We are in danger of losing our focus when we discuss the 1% or 2% of families earning $250,000 who after all, are not instrumental in making large policy decisions in Washington. The true target of our investigation should be those making millions who pay only capital gains tax on their income and the superrich whose fortunes are sheltered from any taxes whatsoever. As the article suggested, the tax code could use more upper class brackets that draw finer distinctions in the top 2%.
written by diesel, September 30, 2010 1:35
50% of American households "own" their homes, but only @ do so outright. Then only 20% of households truly own their homes.
written by diesel, September 30, 2010 1:35
40% do so outright
The Only NYT Readers Now are those making more than $250,000.00
written by Scott ffolliott, September 30, 2010 1:46
The Only NYT Readers Now are those making more than $250,000.00 and 2/3 of them for the Entertainment and Restaurant Sections.
written by RueTheDay, October 01, 2010 7:39
Fairness is a vague term, but there are other reasons why someone who makes $200k/yr should NOT be taxed at the same rate who makes $5 million (actually, the cutoff for the top rate is around $380k, not $200k). The $5M person is much better able to pay a higher tax, they have benefited more from society and the infrastructure it provides, and quite frankly, a far larger portion of their income is likely to have come from economic rents than the $200k person.
written by skeptonomist, October 01, 2010 7:48
What is needed is not philosophy but basic arithmetic. The people's representatives have chosen not to fix health care, as Dean recommends, or do any other of the multitude of things that are proposed to cut down on expenditures, so if there are not to be continuing deficits taxes must be raised. There are not enough ultra-rich, so taxes must be raised on the middle class. The upper middle class can easily absorb this - for example by driving Civics (or Fords) rather than Lexuses.

Some attention to history would also be useful - the country did very well when tax rates were highly progressive. The effects of tax incentives should also be considered realistically instead of in the moronically over-simplified way habitual with economists. If people were forced to work 10 years or so to earn a fortune instead of doing it overnight by speculating, investment might be more productive.
written by jamzo, October 01, 2010 9:07
discussion of economic matters in philosophic arguments cloaks the real issue of who gains what and who pays for it
written by UGG???, October 02, 2010 10:11
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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.