Tax Rate Reality: Under Obama, Filers Up To $284,000 Would Still Pay Less.
I starting writing this op/ed weeks ago, but mothballed it because I didn’t have enough for a story at the time. But recent events… by which I mean the hysteria over “the looming Fiscal Cliff” (insert scary hand-gestures here)… have changed all that.
Perhaps you saw the stories last week on Rachel Maddow about Conservative taxpayers… clearly with no understanding of how marginal tax rates work… worried silly over possibly earning over $250K, or DailyKOS reporting some Woman business owner terrified of earning over $250K? The GOP has always depended upon the ignorance of their base to help them win elections, but as the recent election proved, fewer & fewer people are falling for their bull$#!+ as reality keeps proving them wrong over & over again, until soon the only Republicans left will be the ones that think Sarah Palin is a brilliant politician.
I’ve discussed the public’s stupidity when it comes to marginal tax rates before, pointing out that if the top tax rates goes up from 35% to 39.6%, the guy making $250,000 would pay exactly 5-Cents more in taxes than the guy earning $249,999 (an extra 4.6% on the extra dollar), but the GOP has done a masterful job of convincing a lot of wealthy stupid people that the Obama Administration is going to tax them to death (which certainly begs the question: How did people SO DUMB get to be so wealthy in the first place?)
This past week had everyone on the Sunday Politi-Talk Shows hyperventilating over the fiscal cliff… no, I take that back, THE LOOMING FISCAL CRISIS that will plunge the nation into an economic black hole that makes the Greek economy look stable by comparison… or at least that’s what they certainly make it sound like. And you’d be forgiven if you thought our Deficit might explode rather than shrink dramatically if Washington failed to reach an agreement before the end of the year, but in fact, that’s exactly what would happen: dramatic cuts in spending across the board while taxes simply return to Clinton Boom Years levels. Oh, the horror. As one blogger pointed out last week: “The Rich aren’t afraid a tax increase will crash the economy. They are TERRIFIED that it WON’T!“ I don’t think I’ve ever heard it put more brilliantly.
When the Bush Tax Cuts were passed in 2001, President Bush argued we could afford them because we were “running a surplus”, or in other words, people were being “overtaxed” (so how do we EVER pay off our Debt if the moment we take in more than we spend, Republicans use it as an excuse for cuts? But I digress.)
The economy… which was already in a nosedive as Bush & Cheney talked the economy into a Recession to undercut Gore’s biggest advantage… continued to tank after Bush’s inauguration even BEFORE 9/11 (a timeline I recorded in detail here), but after the attack, the continued decline in the economy was their excuse for keeping the cuts in place. “Tax cuts” when things are good; “Tax cuts” when things are bad. There is no situation where Republicans call for higher taxes (eventually hitting zero, and then they’d mail out “stimulus checks”). So then Democrats, the only adults in the room, must point out that you can’t have pie for dinner every day. At some point, we need to eat our vegetables. And the best place to start is with those people that got the biggest piece of the pie for the past twelve years.
President Obama’s compromise (currently) is to keep the “Bush Tax Cuts” for everyone making less than $250,000 (the lower 98% of Americans), but anyone making more than that will go back to paying the Clinton era tax rates: a top rate of 39.6% (up from 35% today), an increase of just 4.6%.
Now here is where things get a little tricky:
With “progressive taxation” (ie: “brackets”), people making over $250K will STILL get a tax cut on the first $250k of their income, paying LESS in taxes on that portion than they did under Clinton even after President Obama repeals the cut on the top tax rate.
So a thought occurred to me: How much must a person earn before the increase in their taxes negates their savings on the first $250,000?
I put out the call to my fellow Crooks & Liars staff members and thanks to the extraordinary efforts of Heather & “Kathy A” (much thanks), and a bit of work on my own, was able to calculate (approximately) what that amount might be. Using the 2000 & 2012 tax brackets (via “moneychimp.com“), along with the new rates proposed under Obama, I inserted the data into a simple spreadsheet, then comparing the diminishing savings as income grew, I believe I was able to deduce at what point the increase in taxes on income over $250,000 would negate their savings on income below $250,000:
- Under the Clinton era rates, filers paid a maximum of $77,997 (before deductions) on the first $250,000 of income (36% max).
- Under the Bush rates, filers pay a maximum of $64,513 (before deductions) on the first $250,000 of income. (33% max).
- Maximum savings on first $250K (the difference): $13,484.
Clinton: income above $288,350 paid 39.6%.
Bush: income above $388,350 pay 35.0%.
Obama: Income above $250,000 pay 39.6%.
Under President Obama’s proposed changes, anyone making less than $250,000 would still pay the same $64,513 on the first $250K of income as set by the Bush Tax Rates. So all I had to figure out was at what point would someone pay an additional $13,484 more in taxes.
Without getting into the weeds of Deductions and filing Single vs Jointly, I found that a person earning up to $284,000 a year will STILL be paying LESS in taxes under Obama than they did during the Clinton Boom Years. (This does unfortunately create a tiny $4,300 window between $284,050 & $288,350 of people that will pay up to $197 more in taxes under Obama than they did under Clinton. Oh the humanity!)
While Republicans are wetting their knickers over “raising taxes on people making more than $250,000“, in actuality, even after the repeal, people earning up to $284K will STILL be benefiting from the Bush Tax Cut, continuing to pay less today than they did under Clinton.
I know an extra $34,000 might not seem like much in the grand scheme of things, but when you have people who are petrified of making even one penny over $249,999.99, you can relax, I just bought you an extra $34,000 worth of breathing room. THEN you can go back to hyperventilating over having to pay the same tax rate as you did 12 years ago.
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