Bailout

How Obama wants to cut taxes on million-dollar incomes

By Felix Salmon

What happens to people on seven-figure incomes when they pay lower taxes on their first $250,000 income, but higher taxes on the rest, as the Obama administration is proposing? It turns out that they end up paying fewer taxes altogether: $6,349 less per year, on average. (See Thoma, Klein, Marr.)

This is definitely not what I would have expected. For households in the $200k to $500k range I can see that the benefits from the lower-income tax cuts might outweigh the costs from the higher-income tax hikes — but once you’re earning over $1 million, the vast majority of your income is subject to higher, not lower, taxes. And still you end up saving money with this bill!

I’m sure there comes an income point — $2 million? $5 million? more? — where the Obama bill ends up being a net money-loser for the ultra-wealthy. But it would be good to publicize that point, and say that the bill being called a tax hike actually lowers taxes for everybody up to (say) $3 million a year, or whatever it is. That would surely make it harder to oppose, no?

Update: According to scarpy, in the comments, this graph doesn’t show proposed 2011 taxes compared to 2010 taxes, as I naively assumed; instead it shows proposed 2011 taxes compared to what taxes would be in 2011 if the Bush tax cuts expire and nothing is done at all. As he says, it’s important to be clear about these things, and it’s distressing that such clarity seems to be hard to come by.

Full post as published by Macroprudential on August 13, 2010 (boomark / email).