Tuesday, November 27, 2012

Watch Out for the 50% Tax Rate Bubble

Notes Nate Silver:

The coming Congressional debate over fiscal policy is sure to feature a wide array of proposals, some of which would hit certain taxpayers harder than others. 
But one idea being floated by Congressional negotiators, as described in an article by The New York Times’s Jonathan Weisman on Thursday, is hard to defend from the standpoint of rational public policy making.
Its arithmetic could require that the 300,000th dollar of income was taxed at a rate of about 50 percent – even while the three millionth dollar of income, or the three billionth, was taxed at a lower 35 percent rate instead.
Here's an accompanying chart:

Silver has a detailed explanation of why the bubble would result under such a propsal, here. But, bottom line, regardless of the plan, taxes are going to go up and they will go up in a complex fashion to hide just how much they are going up.


  1. On top of the state income taxes and property taxes! Yay!

  2. "Congressional negotiators"?

    Note who is never represented at these "negotiations": the people being expropriated to continue funding the lavish lifestyles of the Congressional negotiators and their buddies in the banking, pharma, insurance, merchant-of-death, etc. industries...

  3. Tax rates should be doubled for everyone who voted for Obama. For the super rich like Wilbur Ross we are all much better off if he is investing his money rather than DC spending it.

  4. The proximate cause of this tax bubble are the Republicans who refuse to raise any marginal tax rates. They are throwing the $300K/yr crowd under the bus to protect the $1M/yr crowd.

    but go ahead, blame Obama. It's not as if you've paid attention to facts in the past.

    1. Oh yeah, it's those darn anti-tax Republicans, not the out-of-control spending from the political class as a whole. Great logic, Obamabot.

    2. So, because the Republicans refuse to cave in and raise taxes, it's their fault if Obama raises taxes on this group? That's some great logic.

      The fact that taxes are so high, and compliance costs hundreds of billions of dollars in wasted accounting and legal activity to shelter money from these high taxes, means nothing. A flat tax that EVERYONE paid, including the leeches at the top and the bottom of the economic ladder would be far more fair. The best tax would be a head tax, and the same for everyone. THAT would cut the size and power of government dramatically.

    3. The best tax would be no tax.

    4. Hopefully by "flat tax" you meant a flat per capita tax and not a flat rate income tax. A flat rate income tax is not just since it still has some people paying much more than others.

      If you must have taxes either make every .gov agency fee for service, and allow people to choose which ones to pay for and which ones not to, or go to a flat per capita tax where every individual consumes approximately the same amount of government services thus every individual pays the same amount.

  5. I wonder what effect this would have on doctors considering early retirement? How about individual business owners?

  6. The idea that we are currently paying less in taxes than in the past is wrong.

    We are not.

    We are simply not paying the SAME taxes to the SAME collectors as in the past.

    If you will note: State and local taxes - property, income, sales, etc have increased as the federal decreased.

    Apples to apples comparisons that limit themselves to one tax or one tax collector do not build a realistic picture for this reason.

    And for this reason, Krugman's idea of returning to WWII rates is totally nuts, and would require the taxpayer to decide which taxes to stiff, since it would be arithmetically impossible to pay them all. And even paying a significant portion of them would result in a 100% expropriation.

    Since no one in our kinder-garten-esque governments bothers to realistically assess their true burden, the real cliff we face is not a fiscal one but a productivity cliff.

    Why work for nothing, when doing nothing for work pays better?