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July 07, 2008

Comments

Hilzoy:
Regarding the MSNBC story, as I blogged here, even if one takes Obama's support for the budget resolution as support for an increase of the 25% bracket, the McCain camp's $32,000 figure is, to be generous, deeply misleading. I don't think it's unfair to say that in using that figure, McCain's camp either doesn't understand our marginal income tax rates, or (more likely in my opinion) is cynically counting on the American people not to understand how it works.

As I blogged there, if you're a "worst-case" taxpayer, a single person taking only the standard deduction and personal exemption, with no tax credits, no pre-tax benefits like health insurance, 401(k) contributions, IRA contributions, etc., you'd have to make $42,000 per year before an increase of the 25% bracket to 28% would impact you, and then it would impact you to the tune of a whopping $15 per year.

tgirsch: good catch. I've updated, with a link. Thanks.

To be fair, it's a Republican political audience. What are the odds that anyone in there wasn't above the 95th percentile in income?

one things McCain's new team surely knows is that it's OK to lie and lie and lie and lie because the press doesn't care all that much, and is afraid to speak ill of a Republican anyway.

it's gonna be 2000 all over again.

"When it comes to taxes, Obama has drawn a firm line in the sand at $250,000. He cuts taxes for the vast majority of families -- more than 95% -- and raises taxes only on those with incomes above $250,000. Whether its income taxes, payroll taxes, capital gains, or stock dividends, his plan does not raise taxes on anyone below $250,000.

I don’t think this is quite so solid, at least in terms of payroll taxes. Obama has been a bit tough to pin down on that.

His official site, as of this morning:

Obama believes that the first place to look for ways to strengthen Social Security is the payroll tax system. Currently, the Social Security payroll tax applies to only the first $102,000 a worker makes. Obama supports increasing the maximum amount of earnings covered by Social Security and he will work with Congress and the American people to choose a payroll tax reform package that will keep Social Security solvent for at least the next half century.

In other speeches and debates he has mentioned the donut hole, but only in terms of he’d consider it, or “potentially exempting those who are in between” ($102k to $250k).

The best idea is to lift the cap on the payroll tax, potentially exempting middle-class folks, but making sure that the wealthy are paying more of their fair share, a little bit more.

But then:

In terms of raising the cap on the payroll tax, right now everybody who's making $102,000 or less pays 100% of payroll tax on 100% of their income. There are about 3% to 4% of Americans who are above $102,000 in income every year. So if you want to talk about who's middle class, me giving cuts to folks making $60,000 or $70,000, and potentially asking more from friends of mine like Warren Buffett. That's a debate I'm happy to have with John McCain, because it's the people making $75,000, $50,000, $60,000 who are hurting.

Here he seems to clearly define “the wealthy” as those making over $102k. If he has actually committed solidly to the “donut hole” I haven’t seen it, and it’s certainly not reflected in his official issues documents.

Of course if he does firmly commit to the donut hole then we’ll be discussing how that changes the fundamental nature of the system – changing it from a safety net to a wealth transfer system.

"Here he seems to clearly define 'the wealthy' as those making over $102k."

Cite:

#
Median household income was about $46,000 in 2005—half of all households had more income than this amount and half had less.

#
Income at the 95th percentile was about $166,000

So that's factually correct.

More. In 2006, the cut-off for being in the 4th percentile of income, the highest 1/4, in the United States, was $97,032. Those are the richest quarter of the population: those whose income is above that.

So what's your point? With a cite to fact, please, rather than to someone's feelings.

Thanks!

"When it comes to taxes, Obama has drawn a firm line in the sand at $250,000. He cuts taxes for the vast majority of families -- more than 95% -- and raises taxes only on those with incomes above $250,000. Whether its income taxes, payroll taxes, capital gains, or stock dividends, his plan does not raise taxes on anyone below $250,000.

As OCSteve points out, Obama has not said this; indeed, regarding the payroll tax, Obama has (at times) said the opposite.

As for McCain's speech: I think you make a solid case that McCain has misrepresented at least some of Obama's current proposals.

I thought that Obama intended to

Gary, I think you meant "quartile" rather than "percentile", but the table shows that number as the top of the range for the fourth fifth. That is, it's the bottom of the fifth quintile (the top 20%).

Two points:

1. Remember that income taxes are paid on taxable income, not gross income. An income tax increase on incomes above $250K is more like one on incomes above $300K. Not true of a payroll tax, of course.

2. Does McCain really want Fiorina as a spokewoman on business and economic matters? During her tenure at Hewlett-Packard the stock lost half its value, and she walked away with a $21 million payout. What next? "Brownie" giving McCain advice on disaster response?

tgirsch: "is cynically counting on the American people not to understand how it works."

Cynical, yes, but tried and true. These concepts are not difficult to understand and the tax code for most folks making below $100,000, say, is not that complicated. As a group, however, the American people are willfully stupid.

"a whopping $15 per year."

Redstate operatives know for whom the $15 whops. Them. They shall be disincentivized from working and resign their jobs come November if Obama is elected and go to full-time blogging, which will be a drag on the economy .... and a drag.

Bernard:

Fiorini is practicing perverted noblesse oblige. Fail in the private sector, make lots of money, and enter public service to lay waste there too.

Carli Fiorna was the head of Hewlett Packard from 1999 to 2005. She was trumpeted as the first mainstream female CEO. The press loved her. You can’t fake it as CEO in the free market though; she was a disaster:

1999 HP Quote: $60
2005 HP Quote: $20

Carli was forced out of the company and HP has subsequently recovered.

So why would McCain would pick Carli Fiorna to be his spokesperson?

Because American politics has nothing to do with substance any more. At a time where leadership is needed to electrify our rail systems, kick the political-change-through-environmentalism environmentalists in the teeth, and build nuclear power plants, we get Carli. Carli has a low body mass index, can articulate words fairly well, is not overly disfigured, and is a woman. Welcome aboard!

There will come a time for leadership in America. We’re not there yet.

I’ll go out on a limb and predict that there will be fundamental political change in America at $8/gallon gas, or after the Fed drops the dollar below $2000/gold ounce. It will not be a decision made by our leaders. It will be change that is imposed upon us.

Cheers.

I very much doubt that Senator McCain has looked into this himself.

Given how little he trusts economists, I wonder who's doing his math for him?

Fiorini "is not overly disfigured."

I imagine this gem pronounced directly into the camera, with poisonous and evident distaste, as Olivier had his Richard III speak directly into the lens, his hump itching, as he confided his schemes to the viewer.

True, Fiorini is a woman. Her mistake was aspiring to be an incompetent, ruthless bastard like most men, though with a lower body mass index.

I have a feeling, BOB, that you believe Fiorini's rise to the top was an example of misplaced nurturing.

She'd rip your throat out with her manhands if she had the chance.

It's what men understand in the workplace.

Given how little he trusts economists, I wonder who's doing his math for him?

I don't know if he distrusts economists. But as Von helpfully pointed out in a previous thread, there are at least 300 economists that trust him to a fault.

As OCSteve points out, Obama has not said this; indeed, regarding the payroll tax, Obama has (at times) said the opposite.

He has, at times, not mentioned the policy specifics such as the 'donut hole' (via OCSteve's cite), but has he actually said the opposite? OC's cite doesn't say that he will include everyone above 102k, just that he will "increas[e] the maximum amount of earnings covered by Social Security" in an unspecified manner.

It's not a flip-flop every time someone fails to give every detail of their policy proposals.

Carleton, see here: http://economistmom.com/2008/06/donut-hole-in-obamas-social-security-tax/

But as Von helpfully pointed out in a previous thread, there are at least 300 economists that trust him to a fault.

I dunno where you're getting this. I find it hard to believe that folks like Gary Becker and Vernon Smith would give up their credibility by signing a statement based solely on faith.

I think you guys are wrong about the payroll tax, based on this. He didn't specify for a while, but then he did. Von, maybe you should do some of your own research before "correcting" hil.

(also, I think your link directly contradicts the point you think it makes. It states:

"Instead, Obama is proposing that the current Social Security payroll tax of 6.2% apply to wage incomes up to the current maximum of $102,000, not at all to the wage dollars earned between $102,000 and $250,000, but again for wage dollars above $250,000. This is what the “donut hole” term refers to....

In other words, someone with wage income of $150,000 would see no change in payroll taxes from current law.)"

This does indeed seem like a messy way to structure a tax, but it is structured this way precisely so it is true that "Whether its income taxes, payroll taxes, capital gains, or stock dividends, his plan does not raise taxes on anyone below $250,000."

Gary: So what's your point? With a cite to fact, please, rather than to someone's feelings.

You’ll have to take that up with the Senator. He’s the one who describes “the wealthy” one day as those making over $250k and another day as those making over $102k. In one speech the wealthy are the top 3-4%. In another it’s 6%. IMO the number of folks impacted between 3% and 6% is substantial (9 million give or take).

And in the statement I quoted (with cite you’ll note), it seems to me that he is clearly excluding those “3% to 4% of Americans who are above $102,000 in income” from his middle class tax cut. So if I agree with you (and apparently him) then those folks are wealthy, not middle class, and subject to having their payroll taxes increased. That seems to prove my original point when I disagreed with the statement “Obama has drawn a firm line in the sand at $250,000.”

From the same cite:

Obama defended his proposal by saying it would fall only on the upper class: "Understand that only 6% of Americans make more than $97,000--so 6% is not the middle class--it's the upper class."

Based on that rather unequivocal statement I have to assume that those making more than $97k will not be eligible for Obama’s middle class tax cuts.


Carleton: It's not a flip-flop every time someone fails to give every detail of their policy proposals.

Agreed – I just think that on such an important question to voters that I should be able to find a clear position statement. His statement on SS on his official website, on his issues page for SS does not mention the donut hole. The only cutoff mentioned is $102k. If you look at the other available statements from debates and speeches he uses that number (or $97) most often. References to the donut hole are always qualified as “willing to discuss it” or the like.

In any case – I find no evidence that “Obama has drawn a firm line in the sand at $250,000” – I do find plenty to the contrary.

Then you're simply not reading his June 2008 payroll tax proposal, OCSteve, which draws exactly that line, as stated in at least two links above.

Ah, if only you'd been willing to devote this much time and analysis to what Bush said about his tax cuts, OCSteve. Oh wait.

Katherine: Well I just saw your links. ;)

We’ll see if that sticks for a while. Still - I don’t think I should have to track down a speech he made in a senior citizen home in Ohio (or have it pointed out to me) for that. It would be nice if they would update his official position on his official website.

Is he going to stick with under $250k as middle class now (and for all purposes)? That would be nice to know… Plus he is now in disagreement with Gary which is never a good thing. ;)

So now we can change gears to discuss how this donut hole fundamentally changes the nature of the program as it has existed since inception.

I think you guys are wrong about the payroll tax, based on this. He didn't specify for a while, but then he did. Von, maybe you should do some of your own research before "correcting" hil.

Thanks for the insight, Katherine, but please see here: http://economistmom.com/2008/06/donut-hole-in-obamas-social-security-tax/ (second time posted).

(also, I think your link directly contradicts the point you think it makes. It states:

Aaargh. What a timewaster. Katherine, here is what Obama wrote in September 2007 -- his original plan, which he later said he may modify to include a donut hole. (It's from the linked article -- but you apparently didn't click all the way through -- so I reprint it here. Original source: >(http://www.qctimes.com/articles/2007/09/21/opinion/opinion/doc46f35dac127eb409456532.):

A return to fiscal responsibility, so we are not borrowing billions from the Social Security trust fund, would help strengthen the program for the long term. If any additional steps are necessary, we should carefully weigh our options. And as president, there are some basic principles I would honor:

First, I will fight against efforts to privatize Social Security, as I and others did when President Bush proposed private accounts a few years ago. Privatization is wrong. It tears at the fabric of Social Security — the idea of mutual responsibility — by subjecting a secure retirement to the whims of the market.

Second, I do not want to cut benefits or raise the retirement age. I believe there are a number of ways we can make Social Security solvent that do not involve placing these added burdens on our seniors. One possible option, for example, is to raise the cap on the amount of income subject to the Social Security tax. If we kept the payroll tax rate exactly the same but applied it to all earnings and not just the first $97,500, we could virtually eliminate the entire Social Security shortfall.

(Emphasis added.)

As an aside: I don't agree with Katherine that a Obama has now settled on a final position regarding a donut whole. He is certainly moving in that direction, but he has given himself plenty of outs.

donut whole ==> hole.

OCSteve, $250,000 is the level below which he's saying he won't raise your taxes. That doesn't mean it's the level where you're middle class, or where you get the middle class tax cut. Taxes can stay the same for some people.

Yes: in 2007 he discussed the possibility of raising the payroll tax cap & discussed the possibility of a "donut whole exemption" without specifying the cap. Then, in June, he specified, as YOUR OWN LINK STATES, in the part I quoted, that payroll taxes would not go up for anyone making less than $250,000. It is, of course, possible that he could change that plan in office, in exactly the same way that it is always possible for any candidate to change any of their pre-election plans in office, but the proposal is perfectly clear & specific, Hilzoy & Bernstein are right, and the only "evidence" you produced to the contrary actually supports them & not you.

I agree that this is an absurd timewaster though.

Katherine, Obama's team actually said that his proposal "could include" a donut hole, essentially adopting John Edwards' proposal. And, like I said, (1) Obama has been consistently repeating the donut hole idea while (2) keeping his options open.

Frankly, it's better economics to means-test on the back end.

Frankly, it's better economics to means-test on the back end.

Means test based on what?

It might be a good idea at this point for someone to do a post concerning exactly what constitutes the "middle class," because there doesn't seem to be an agreement on this count. For starters, virtually everyone who is neither abjectly poor nor obscenely wealthy seems to assume that the middle class must include them.

From a statistical perspective, the "middle class" would simply be the middle three quintiles -- those with household incomes between $20,032 and $97,029 (since Gary's lurking, cite). But while technically acceptable, that definition isn't really what most people use, in particular at the higher end.

I think part of the problem is that most people who are in the "upper class" don't really want to think of themselves as such, perhaps because they have a skewed idea of what being in the "upper class" actually means. It doesn't mean that you're independently wealthy, just that you're well ahead of the game. Let's face it, if your household income is over $97,000, you're probably not living from paycheck to paycheck unless you're doing something seriously wrong.

While I'm assigning homework, it would be interesting to see the trends in income inequality. What's the ratio of the "lower threshold" of the top 1% to the median income, for example? Recent evidence suggests that the trend is not good.

I dunno where you're getting this. I find it hard to believe that folks like Gary Becker and Vernon Smith would give up their credibility by signing a statement based solely on faith.

Because they have made a career of it?

Re: means testing: I weakly favor asset testing, but recognize that earnings testing may be easier to do.

Because they have made a career of it?

I suppose that if one knew nothing about Simth's or Becker's careers, one would think this a clever retort.

BTW, Katherine, just to be sure: you are seeking to defend the proposition that Obama hasn't shifted his position on the donut, right? (See Carleton Wu's post on July 08, 2008 at 01:06 PM, which my posts have been in response to.) Because I'm having real difficulty seeing where you're coming from on this one.

Yeah. We apparently don't speak the same language regarding the campaign, and you don't appear to understand the difference between a hypothetical--"One possible option, for example, is to raise the cap on the amount of income subject to the Social Security tax. If we kept the payroll tax rate exactly the same but applied it to all earnings and not just the first $97,500, we could virtually eliminate the entire Social Security shortfall"--and an actual campaign policy proposal. I don't think further conversation on campaign issues is productive, as I think your approach in the past few threads at best shows a mind made up regardless of the merits or content of any policy proposals, and at worst isn't even honest.

(of course, my mind is equally made up as far as who I'm voting for. But that doesn't mean I'll twist the facts & make a bunch of unsupported assumptions in every conversation to make Obama look good & McCain look bad. For instance, on FISA? Obama is behaving smarmily, insulting my intelligence & has lost a remarkable amount of my respect in a short time.)

Gary, I think you meant "quartile" rather than "percentile", but the table shows that number as the top of the range for the fourth fifth. That is, it's the bottom of the fifth quintile (the top 20%).
Right on both counts; thanks for the correction. I believe my point to OCSteve still stands as correct, though, does it not?

"I dunno where you're getting this. I find it hard to believe that folks like Gary Becker and Vernon Smith would give up their credibility by signing a statement based solely on faith."

I certainly could be wrong, but my first guess would be that it came from this point that you haven't responded to. The one in which you appeared to explain that we allegedly don't know enough about the McCain plan to be allowed to criticise it, but we know enough that we should take note of people who have "endorsed" this plan that we don't yet know enough about to be allowed to discuss. I asked if I had that right; I'm still wondering, and perhaps others are, as well, since you haven't responded. You seemed to be saying that we should talk about the praise, but we can't criticize? Did I miss something in your position? It certainly would be good to otherstand your position as something different, so I do invite you, again, to clarify what you meant and mean.

But you do seem to repeat the point again with "I find it hard to believe that folks like Gary Becker and Vernon Smith would give up their credibility by signing a statement based solely on faith": how is it that you can assert that no one should criticize McCain's plan, because it hasn't been officially published yet, but if someone praises the non-published plan, we should pay attention to that, but, also, said praise isn't based on faith.

I'm really having trouble understanding what it is you're suggesting as regards how this should work. But maybe that's just me, and everyone else understands you clearly.

How does that work?

I should say: I'm actually quite surprised by some of the people who signed. The one that got me was Malkiel: he taught me in college, and I have a lot of respect for him.

"You’ll have to take that up with the Senator. He’s the one who describes 'the wealthy' one day as those making over $250k and another day as those making over $102k."

I'm not following you, OCSteve: both statements are factually true. Right? "Median household income was about $46,000 in 2005—half of all households had more income than this amount and half had less." If you have twice the median income, you're twice as wealthy as half the population, and if you have double that income, you're twice as wealthy as the first wealthy group.

"In one speech the wealthy are the top 3-4%. In another it’s 6%."

Sure. So? I mean, anyone in the top 35% of income in the country is in the top third of income in the country, and is wealthy. I mean, you do acknowledge this simple fact, right?

"That seems to prove my original point when I disagreed with the statement 'Obama has drawn a firm line in the sand at $250,000.'"

Okay, I do get this point, then, although Katherine then points out that "This does indeed seem like a messy way to structure a tax, but it is structured this way precisely so it is true that 'Whether its income taxes, payroll taxes, capital gains, or stock dividends, his plan does not raise taxes on anyone below $250,000.'"

"It would be nice if they would update his official position on his official website."

True.

"Is he going to stick with under $250k as middle class now (and for all purposes)? That would be nice to know… Plus he is now in disagreement with Gary which is never a good thing. ;)"

Thanks. ;-) "Middle-class" and "upper-class" are subjective terms unless we define them clearly, to be sure. That's without getting into definitions of "class" that aren't strictly income or wealth based. But certainly I wouldn't tend to quibble much, when discussing class-by-income/assets, in labeling someone making more than $250K a year as "upper-class" in income, offhand. But, then, to me, anyone making more than $20K looks good. I certainly would regard any individual making $97,500/year as "well-off," at the very least. Hell, I'd be happy right now to just have a few hundred dollars more, or to be able to earn a few thousand in the next year, and thus able to have the option of moving into a place of my own again in less than a year or two or three. But I digress.

KCinDC's comment seems accurate: "OCSteve, $250,000 is the level below which he's saying he won't raise your taxes. That doesn't mean it's the level where you're middle class, or where you get the middle class tax cut. Taxes can stay the same for some people."

I'm not aware that anyone is required to always use the term "middle class" with an identical means test as a definition in every use of the term. Do you know anyone who does that, and do you believe anyone or everyone should be required to hold to that degree of consistency? If not, I'm back to being unclear what your overall point is, other than suggesting that maximum clarity would be good, which is a point I'm always in agreement with.

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