In an attempt to get out in front of the conservative talking point machine, the president has again stated his desire to retain much of the Bush era tax cuts with the exception of income above $250,000.
There is a tendency for people to believe that under this proposal you will suddenly see a massive increase in your taxes once you hit $250,001. The reality is that with our tax system, your first $250,000 is taxed at the same rate regardless of how much you make beyond that and only the additional $1 would be subject to a higher tax rate. This is not a massive tax increase.
Another thing to consider with this proposal is that the debate and subsequent stalemate sure to follow will kill job growth. If you look back at the debt ceiling debate from last year you will see that jobs were increasing at a steady pace until the Republicans added in the uncertainty of expanding the debt ceiling, which killed job growth for the duration of the debate. Once settled, jobs returned to their pre-debt ceiling debate levels and the unemployment rate dropped.
But the one thing I find really funny about the tax increase debate is the inconsistency with which it is argued. If you listen to conservatives they lament that something like 47% of taxpayers paid no federal income tax. They will also claim that the top 1% pays around 36% of the taxes while only earning 17% of the income.
While both of these statistics are true, they are taken from different points in tax code. To prove that 47% of tax payers pay no federal taxes you have to go to the point in the tax code after everyone has taken out their deductions and exemptions and determined their “Taxable Income” (Line 43 of Form 1040).
However to prove that the rich pay 36% of the taxes while only earning 17% of the income you have to use “Adjusted Gross Income” which comes from line 38 of Form 1040.
If you calculate both of these numbers at “Taxable Income” you still get 47% of taxpayers paying no federal income tax, however it also changes the percentages for the Top 1%. Instead of earning 17% and paying 36%, they earn 31% of the income while only paying 22% of the taxes.
If instead you decide that the important data is the “Adjusted Gross Income,” then the Top 1% pays more than their fair share of taxes, but that basically eliminates the 47% of taxpayers who pay no federal income tax. Most people don’t qualify for the deductions that occur before the Adjusted Gross Income, so if you are filing a tax return you must have made some money and subsequently have paid federal income tax. The credits that occur after the AGI are the main reason people pay no federal income tax.
The reason that understanding the difference between how these two talking points are figured is important is because they require different competing solutions. Essentially fixing one of these two issues will have a detrimental effect on the other. Broaden the base to include more taxpayers and the percentage the Top 1% pays goes up, while cutting taxes will increase the number of people not paying taxes.
Getting people to believe that these are two sides to the same coin is a win/win for Republicans since any attempts to fix either perceived problem will make the other look worse, which of course will lead to louder cries for how unfair the system is.
Understanding the origin of these numbers is important to understanding how politicians and talking heads are intentionally or unintentionally manipulating the populace. Because an educated electorate is a politician’s worst enemy.