7/15/2009

Taxes

Do people really think the proposed 45% tax rate on the wealthy will be the last tax increase? Hey, "middle" class (i.e., everyone else) - your turn is coming.
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11 comments:

PG said...

According to Gov. Palin, the pass-on effect of the cap-and-trade legislation's effect on energy prices (which the CBO estimates will increase the typical American household's cost of living by $1,600 annually) is itself a tax and thus a violation of Obama's promise not to increase taxes on households making less than $250k a year.

If we look at all regulations that way, there's a crazy number of taxes we're dealing with: the mandatory-airbag tax when we buy a new car, the can-no-longer-mix-with-lead tax when we buy milk, the gotta-put-them-in-an-approved-seat tax when we want to drive the baby home from the hospital... there's a terrible middle-class tax burden.

July 15, 2009 at 8:52 AM
Raffi said...

There are enough actual direct taxes that are going to go up without having fun with Palin.

July 15, 2009 at 8:56 AM
PG said...

Why do you assume the tax rates will go up? And on what time-frame are you seeing this? I find it unlikely that direct federal taxes on people making less than $250k a year will go up during a recession.

July 15, 2009 at 9:52 AM
Raffi said...

I don't think they're going up immediately. But soon. 5 years, say.
There is simply not enough revenue to cover all the new spending and deficits, which I think every even vaguely center left writer I've read recognizes. We are going to get either a VAT or higher marginal rates, or something. You can't just keep soaking the rich with marginal rates well over 50% (in NYC or California) and expect them to fund the entire deficit.

July 15, 2009 at 10:00 AM
PG said...

My understanding is that the brackets are not automatically adjusted to inflation, so I think it's possible to keep the brackets where they are and just watch as inflation gradually puts more people into the $250k+ zone without an increase in those folks' real purchasing power.

I'll be interested to see whether the rate spike at the $250k point will be dramatic enough that people will actively try to avoid having their income go that high; i.e., will people start shifting toward trading more income for leisure on the premise that the marginal rate becomes so dramatically higher right at the $250k line that it's not worth keeping the 40 cents on the dollar.

July 15, 2009 at 10:21 AM
Sarah said...

Most people making that much money aren't being paid by the hour, though, PG. It's not like a Goldman associate or a fifth-year in Biglaw can choose to stop work at a certain point to avoid going over $250K income.

July 15, 2009 at 11:46 AM
PG said...

Sarah,

No, but a married couple of high earners may choose to have one person leave the workforce or go to a lower-paying job. My household is currently over $250k because we're both at law firm jobs, but if he moved to public interest/government (which pays, what, $50-75k?), we'd drop below that. That would be a trade of income for leisure.

July 15, 2009 at 12:46 PM
Raffi said...

Government pays a little more than that, PG, depending on whose government you mean.

On your tax bracket point, I think that natural growth of revenues is already factored into the deficit. That's why they can't permanently fix the AMT thing.

July 15, 2009 at 12:56 PM
PG said...

I was thinking of NYC-area public interest and government jobs. In 2004, a first-year assistant district attorney in Manhattan made $50k; a first-year public defender for Legal Aid made $46k. DOJ jobs pay better, though even those start at $50k based on where you're located and top out at a maximum $150k.

I assumed the deficit adjusts year-to-year for inflation of our debt, but I wasn't aware that it included the inflation of wages that would push increasing numbers of taxpayers into a static bracket.

July 15, 2009 at 1:57 PM
Sarah said...

It's a rare DOJ job (for "experienced" attorneys, i.e., those with more than one year) where you won't come in at least 13-1, I think. That starts you off at about $80K before any locality adjustments. If I'd been married to a DOJ lawyer in the happy golden year of 2007, my first full year in biglaw, we would have smashed right through that number.

I suspect--though I've no empirical evidence for this--that people making that much money have already demonstrated that they very much value money over time. It's difficult to get a job that pays $250K that leaves you with any sort of personal time. If your husband was going to go into public interest, he was going to do it anyway, I think; the number of people for whom 13% of the income over $250K is going to be a game-changer ("Biglaw is tolerable for $104K, but *not* for $83.2K!") will be small, especially when you consider that perks make some of that back up. (I have to have a grocery budget now. I buy groceries!)

There was a time in the twentieth century when the highest tax bracket was ninety percent and somehow the engine of the economy didn't sputter to a halt.

July 15, 2009 at 9:22 PM
PG said...

The valuing of money over time often depends on what one needs the money for. If you've already paid off all your debt from your pre-BigLaw life (school loans, credit cards, etc.), for example, then the desire to make lots of money at the expense of one's leisure may decline. Once you've amassed a certain amount of money, you're either working because you like the work or because you want particularly nice things (to send the kids to boarding school, to own a BMW). A substantial amount of law firm attrition is due to people's deciding not only that they've had enough of BigLaw, but that they've piled up enough money. With the specific example of my husband, he'd be more likely to leave a BigLaw job at the point that he felt financially secure in doing so.

The top marginal rate was 91% for income over $400,000 in 1950. I think $400k in 1950 dollars is $3.5 mil in 2008 dollars. That's not the top 1% of households; that's like the top 0.001%.

July 16, 2009 at 12:27 PM

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