Margin Walker

by Eric Martin

The attorney featured in this article - who claims that she will refuse to see some of her clients in order to keep her earnings down to avoid being hit by Obama's increase of the marginal tax rate on earnings above the $250,000 threshold - is most likely doing those clients a favor.  At least if her ability to grasp the concept of marginal tax rates is any indication of her reasoning skills generally speaking.  Also, the journalist who wrote the piece should be ashamed:

President Barack Obama's tax proposal -- which promises to increase taxes for those families with incomes of $250,000 or more -- has some Americans brainstorming ways to decrease their pay, even if it's just by a dollar.

A 63-year-old attorney based in Lafayette, La., who asked not to be named, told ABCNews.com that she plans to cut back on her business to get her annual income under the quarter million mark should the Obama tax plan be passed by Congress and become law. [...]

"We are going to try to figure out how to make our income $249,999.00," she said.

"We have to find a way out where we can make just what we need to just under the line so we can benefit from Obama's tax plan," she added. "Why kill yourself working if you're going to give it all away to people who aren't working as hard?"

The attorney says that in order to decrease her income she'll have to let go of clients, some of whom she's been counseling for more than a decade.

"This means I'll have to tell some of my clients we can't help them and being more selective in general about who we help," she said. "I hate to do it."

Wow.  That is...just mind boggling.  Allow me to explain the concept of marginal tax rates to our would-be Jane Galt (and her admirers, like Tennessee law professor (I'm as incredulous as you) Glenn Reynolds).  The marginal tax rate structure means that you pay a certain rate for money earned within certain dollar amount brackets.  So, to simplify with hypothetical rates: you pay zero income taxes on dollars 0-20,000, then you pay 15% on dollars 20,001-50,000, you pay 25% on dollars 50,000-100,000 and so on.  You don't pay a higher rate on all of your dollars just because some of your dollars make it into a higher tax bracket.  Only those dollars above the given threshold are subject to that rate.

The tax rate on earnings above $250,000 is presently 35% (lowered from 39.6% by Bush).  Obama is proposing to restore that rate to the Clinton-era level of 39.6%.  What this means is that for a married couple earning $300,000 (after above the line deductions), the dollars that they make above the $250,000 threshold would be taxed at 39.6% rather than 35%.  But all earnings below the $250,000 would still be taxed at the same tiered rates as before!  You don't pay 39.6% on all of your earnings simply because you surpassed that level!

So the the Obama plan would mean that our hypothetical couple pays $19,800 rather than $17,500 on that $50,000 that falls into the $250,000 and above tax bracket.  A difference of...$2,300.  But the person still takes home $30,200 of that $50,000, as opposed to $32,500 out of $50.000.  Slightly less, but generally speaking, making more money is viewed as a good thing by most individuals, even if there is a slightly higher rate applied to those extra earnings.

Now let's go back to the reasoning of our Louisiana attorney - reasoning applauded by Glenn Reynolds and the other commentators he links to.  This woman is going to turn away clients, and turn away income, so that she ensures that her income does not surpass $249,999, rather than subject any additional dollars to a slightly higher rate of taxes.  Presumably, she would rather have $0 tax free than $50,000 taxed at 39.6%.  But, mind you, she was quite willing to work for the extra $50,000 when it was taxed at 35%.  The net effect: she will have $30,200 less dollars in her pocket just so she can avoid giving the federal government an additional $2,300, and she will have alienated clients and caused them to look elsewhere for legal services - damaging her business long term.

As I said: those clients she turns away as part of her grand tax-gaming scheme should feel lucky.

(via)

[BONUS: From TBogg:

I have a friend who is planning to not work overtime this year to stay well below the dangerous benchmark that is 250k. His point was that he might as well take some time off and enjoy and relax rather than work and give every dollar above 250 away. I don’t blame his reasoning and the loss is, he spends his money.

Heh.  Indeedydoozle.]

Comments

[Davebo]

Reynolds isn't stupid, just horribly dishonest.

With just enough plausible deniability thrown in.

[d'd'd'dave]

// Obama is proposing to restore that rate to the Clinton-era level of 39.6%.//

and limit itemized deductions
and raise the fica limit
and not use the money to pay down debt

[Larv]

Eric, isn't this trespassing on Von's territory? I thought Fugazi song/post titles were his bailiwick.

[Joshua]

If the recession doesn't bankrupt me to death, I'll die of lulz overdose for sure.

[russell]

and limit itemized deductions
and raise the fica limit

What's your back-of-envelope worst case for all federal tax liability on marginal income above $250K?

[Eric Martin]

and limit itemized deductions

This is possibly a viable argument, but not until we suss out what he intends, and what gets actually passed. Even if you tacked a thousand or two on to the discrepancy, the theories of the Galters are sorely lacking.

and raise the fica limit

See, above.

and not use the money to pay down debt

Which would justify capping ones earnings at $249,999 how exactly?

[Slartibartfast]

Taking the FICA limit off is a much bigger hit to total taxes paid than is bumping up the upper bracket rate, no matter what you make (over $107k, anyway). Under the current FICA limit, there's no effect from either change.

[Eric Martin]

Eric, isn't this trespassing on Von's territory? I thought Fugazi song/post titles were his bailiwick.

We pass the bottle back and forth. Here from August:

http://obsidianwings.blogs.com/obsidian_wings/2008/08/this-is-a-parti.html

Way back in 2007:

http://tianews.blogspot.com/2007/05/troops-are-quiet-tonight-but-its-not.html

and

http://tianews.blogspot.com/2007/03/you-can-carry-out-your-noble-missions.html

[Slartibartfast]

I think it's a symbolic protest, Eric, similar to those people who swore they'd leave the country if Bush became President back in 2001, and didn't.

[mckinneytexas]

They call it a marginal rate because of the added cost of earning the marginal dollar, which is presently taxed at 37.9%, not 35%. The 35% number is the income tax, the 2.9% is the medicare tax, like it somehow matters what name you give a tax. Add in an additional 3.6% and many professionals, who are already paying plenty of taxes and who aren't getting any younger, are asking themselves how much longer do they want to continue to put in the longer hours for the marginal dollar that they already pay a nearly 40% tax on?

Eric writes as if the present tax burden is a great joy and privilege for those who bear it. Maybe he feels good about paying a lot of money in taxes. Many of the rest of us were already feeling ill-used and the new regime is adding to the load.

I turn 55 next month, my kids are out of school and on their own and my wife and I can get by on a lot less than 250K a year which would mean I could play a lot more golf and do a lot more fishing. If I cut my income in half by reducing my time in the office by 40% and cutting staff by 50-60%, I still make a great living and enjoy life a lot more. Obama is pushing me in that direction. Eric may think it's stupid. I think Eric is young and clueless if he doesn't understand the marginal dollar comes at a higher marginal cost in time and personal imposition (and economic risk) and that it already is taxed pretty damn high. Since I don't need those marginal dollars, why should I bust my ass earning them?

[Halteclere]

mckinneytexas: "Since I don't need those marginal dollars, why should I bust my ass earning them?"

Why stop at limiting your earnings to below the $250K demarcation? Why not limit your earnings to below the demarcation below that? Think of all the taxes you would not have to pay then, and, only working 20% of the time you'd have even more time for golf!

I find it to be either a disingenuous or petulant argument that paying 4.5% more (39.4% instead of 35%)taxes on income over $250K is the prime reason for anyone to purposely limit their income or hobble their business.

[Halteclere]

Oops - I have a problem typing numbers: 4.6% more (39.6% instead of 35%)

[jrudkis]

An attorney that bills by the hour is one of the few people who can really make that case, since she is literally making less money per hour the more she works: She really can look at whether staying late on Friday night's is worth it when that extra work is rewarded with less money per hour. When your time is sold, the correlation is probably pretty easy to make.

Whether that marginal difference is really enough to get people to stop working is another question. However, coupled with other tax vagaries, such as loss of deductible interest on student loans at a certain income, loss of child care deductions, etc, I think there is a point where a 40 hour work week will seem better than 60 that makes more money but less per hour.

Americans are used to the idea of "time and a half" when you work overtime. Effectively making overtime pay less does not seem to reward hard work.

[Slartibartfast]

Americans are used to the idea of "time and a half" when you work overtime.

I'd amend that to some Americans. I haven't seen time-and-a-half since 1984 or so.

[Eric Martin]

Eric writes as if the present tax burden is a great joy and privilege for those who bear it. Maybe he feels good about paying a lot of money in taxes. Many of the rest of us were already feeling ill-used and the new regime is adding to the load.

I will feel estatic if and when I pass the $250,000 threshold! Abso-f*ing-lutely I will. I'm getting close, but still a few tens of thousands short. Some day, I aspire to get taxed in that upper bracket!

I turn 55 next month, my kids are out of school and on their own and my wife and I can get by on a lot less than 250K a year which would mean I could play a lot more golf and do a lot more fishing. If I cut my income in half by reducing my time in the office by 40% and cutting staff by 50-60%, I still make a great living and enjoy life a lot more. Obama is pushing me in that direction.

You should thank Obama for that! Sounds like he's doing you a favor!

Since I don't need those marginal dollars, why should I bust my ass earning them?

You shouldn't!

But whether or not the rate is 35% or 39.6% isn't the game changer in that equation. Or, at least, it shouldn't be if you're being rational.

However, coupled with other tax vagaries, such as loss of deductible interest on student loans at a certain income, loss of child care deductions, etc, I think there is a point where a 40 hour work week will seem better than 60 that makes more money but less per hour.

Are people aware of the 70-90% marginal rates un the upper brackets during the period of prolonged boom after WW II up until the upper bracket cuts of Kennedy and Reagan (were still higher under Reagan than today).

Americans seemed plenty interested in working their asses off. Country prospered pretty well too.

During the Clinton years, too, did the country do quite well. Even with the dread 39.6% rate on the upper bracket.

[brent]

Since I don't need those marginal dollars, why should I bust my ass earning them?

Seems to me that you have answered your own question. If you don't want the money enough and you don't need it then, by all means, go ahead and significantly reduce your own income. Clearly you don't need our permission. Why would anyone, from the President on down, be interested in talking you out of it?

Many of the rest of us were already feeling ill-used and the new regime is adding to the load.

Well the question of course is: At what tax rate wouldn't you feel ill used? This is the tax rate that is calculated to generate the revenue our society requires to continue to function and allow you and everyone else to generate the income that they do. If you have a problem with the calculation that is one issue. If however you feel as a matter of principle that you should pay less then you only need to present a plan that will generate similar revenue or one that will allow that society to function at a similar level of efficiency on far less revenue. So far, no one has presented such a plan but here's your chance.

[br]

Rather than commenting on the article's stupidity, this is quickly becoming another inane comment thread on taxation. Left of Center: "We're just returning to Clinton taxation. We had the greatest stretch of growth under those rates. Rich people did fine back then." Right Wing: "Even if I make no where near 250K, these new Obama tax hikes are such a buzzkill that I'm going to retire."

Boring. Done. Kill the thread.

[Phil]

In your summary calculation paragraph you aren't taking into account her gained hours of free time, which may be worth more to her than the marginal income she can now make with those hours.

[Phil]

@ brent,

The President does want to talk you out of lowering your income because that lowers tax income and also weakens the economy. Obama has said he is trying to stimulate the economy.

Also, lets try less spending instead of more taxing to balance the budget. Lots of people have presented such a plan, and been ignored. Both by the Bush and Obama administrations.

[Eric Martin]

In your summary calculation paragraph you aren't taking into account her gained hours of free time, which may be worth more to her than the marginal income she can now make with those hours.

If that 4.6% difference in tax rate on those dollars tilts the calculus in favor of free time, so be it - even if I question that math.

But let's say it does, what is the net effect?

Some other lawyer ends up picking up the clients in question, makes more money themselves, and little if any effect is felt in terms of the overall economy.

There are certainly no shortages of attorneys, and a constant need for more clients. I'm not worried that the John Galt/Jane Galt movement is going to have an impact.

After all, America of a decade ago seemed to get by just fine with the 39.6% rate.

[Tony P.]

mckinneytexas,

Go ahead: give yourself a tax cut by reducing your income. Nobody's stopping you.

Your clients will just have to pay somebody else for the services you choose not to provide. Somebody in a lower tax bracket, perhaps. That should make you doubly happy.

--TP

[roger]

I don't really see the down side even if the Gentleman from Texas decides not to work. You'll notice, we have terrifically bad unemployment, and we have tons of grads from law schools and business schools coming into the market who would probably eagerly pick up clients that Mr. Texan or the tax lawyer loses. The Galtist strike depends on monopoly rents, but those monopolies are artificial - they are prodcued, often, by the state, which licenses lawyers and dentists and such. Raising the supply of these professionals is an excellent idea, and would make them more efficient, especially as they seem to think they are entitled, by God, to the Bush tax rate.
Tough luck for them. More stuff for us. What's not to love?

[wonkie]

Oh poor crybabies with potential incomes above 250.000! Poor little rich people. Why should they be expected to pay a little more in membership dues (per earned dollar) to society than low income people do? They are obviously smarter, richer, better people and they should be able to enjoy all of the good things in life and earn more annd more and more for themselves, themselves, themselves at the current tax rate because they are obviously smarter. richer ahd therefore better people than everyone else! Why should they care about anything other than immediate short term materialistic self interest?

It is so unfair that they should have to face even a minor trade off that would barely effect their ability to self indulge!

And no, this is not at all like the single mother who can't work more or she would lose her food stamps. And it isn't at all like the working poor family that can't work more or they won't be eligible for subsidized health insurance for their kids.

Let's all feel sorry for the poor rich people who wan't be richer, especially the ones who decide to pout and sulk and lay off employees just to be spiteful.

After all rich people are better than everyone else and a tax system that favors them will benefit everyone else. Bonzo the Brainless said so back in the day and conservatives have been chanting that ever since so it much be true. I bet Rush Limbaugh will be telling poor little rich people stories in no time at all! We know that he can't possibly be expected to work more if his increased wealth would be taxed at a higher rate!

Hey...

[Turbulence]

Americans are used to the idea of "time and a half" when you work overtime. Effectively making overtime pay less does not seem to reward hard work.

Speaking as a professional, I'm used to overtime paying me absolutely nothing. Not "time and a half" and not even plain old time, but ZERO. I think you might want to qualify your original statement.

[Madrocketscientist]

A point being missed:

"If I cut my income in half by reducing my time in the office by 40% and cutting staff by 50-60%..."

Here's a case of potentially tipping the balance and doing more harm than good. If he decides to scale back because he doesn't want to pay taxes, then a few people lose jobs.

And I agree, in many cases it is a symbolic protest. I hate watching my tax money get gobbled up by the massive fed where I have no real control over how it is spent, and no real transparency over the spending.

[brent]

The President does want to talk you out of lowering your income because that lowers tax income and also weakens the economy.

This, of course, assumes that the income given up by one person will not be taken by another. That is not a reasonable assumption.

Also, lets try less spending instead of more taxing to balance the budget. Lots of people have presented such a plan, and been ignored. Both by the Bush and Obama administrations.

Well balancing the budget is easy. I can come up with a "plan" for that right now. Spend significantly less on defense, education and medicare. Done. The issue of course is whether that decrease in spending will help or hurt our economy and the evidence is that it will hurt. That plan I am asking for is the one that will help our economy, or at least maintain the status quo, while significantly lowering revenue to the point that mckinney doesn't feel ill used. Do you have any plans for that?

[Slartibartfast]

This business of cutting income so as to avoid paying taxes reminds me of a scene from Blazing Saddles. No, not the campfire scene, the one where the sheriff takes himself hostage.

Hold it! Next man makes a move, the nigger gets it!

Maybe not all that close a fit, but it's what popped out.

[Eric Martin]

Yeah Slarti. There definitely is an element of that to it.

[jrudkis]

Turbulence,

Right, many salaried professionals are not generally covered by the requirements of time and a half. But that is why I thought the attorney is a good example of someone who can make this claim. If you are salaried with no overtime, then it makes no sense to demand $249,999 per year and no more, since making the additional money is not related directly to hours worked.

The attorney in question is not entitled to overtime, but she does directly get paid by the hour billed. She also has to pay her support staff time and a half for their overtime, which probably means either she is doing more of the clerical work herself when she is working overtime, or she is making even less per hour overtime because her overhead is higher when she is continuing to have support staff after 40 hours.

[Chuchundra]

So what you're say, Madrocketscientist, is that you have suck little care for the people that work for you that you're willing to fire some of them so that you can engage in a protest over a marginal tax increase?

Seems pretty cold to me.

[Slartibartfast]

She also has to pay her support staff time and a half for their overtime

Not necessarily. Her support staff could be salaried.

[jrudkis]

Slarti,

Not in my state. Salaried does not mean exempt.

[Eric Martin]

The attorney in question is not entitled to overtime, but she does directly get paid by the hour billed. She also has to pay her support staff time and a half for their overtime, which probably means either she is doing more of the clerical work herself when she is working overtime, or she is making even less per hour overtime because her overhead is higher when she is continuing to have support staff after 40 hours.

Doesn't work like that. First of all, it is unlikely that she's working so much that she's paying support staff overtime. Attorney's don't do that much, they just cram everything they can into the working day, or, most likely, have salaried support staff.

Besides, any overtime she pays out is directly deductible above the line, so the impact on her bottom line is dubious.

[ral]

Assuming her clients need the work done and she is not the only possible choice, I suppose they will just have to find another lawyer.

[Slartibartfast]

Which state is that, jrudkis?

"Salaried does not mean exempt" doesn't mean that no salaried are exempt. There are salaried-exempt, and salaried-nonexempt.

[russell]

If I cut my income in half by reducing my time in the office by 40% and cutting staff by 50-60%, I still make a great living and enjoy life a lot more.

That extra nickel on the marginal dollar making it not worth your while to get up and put your game face on?

Your in a position to semi retire at age 55. Lots of folks are looking at starting over from freaking zero at age 55.

Really, get a grip.

Instead of laying off half your shop, why don't you sell your business to your employees? Get some cash up front, draw an income (less than $250K, natch), and golf and fish all freaking day?

I'm just not sure what to make of people who would close up shop and cut all of their people loose because they are going to pay another nickel on each dollar above $250K.

Do what you need to do mckinney, but I'm just not that sympathetic.

If you think you work hard, I can tell you there are lots of people who work a f*ck of a lot harder for a f*ck of a lot less reward. Pardon my french.

Wealthy people have had a great ride for the last ten years. Actually, longer than that. The economy of the US is dead in the water. You're being asked to kick in something like a nickel more on each marginal dollar above a quarter of a million dollars a year. It'll help everyone else in the damned country out.

If you can't bring yourself to do it, then stay the f*** home. If you're doing anything remotely useful or valuable, somebody else will jump in and be happy to do so.

Do what you need to do, dude, and the rest of us will do the same.

This whole damned conversation depresses the hell out of me. You'd think the reason this country exists is to make sure rich people suffer no inconvenience or distress.

I'm tired of being asked to kiss entrepreneurial ass. And I have nothing against entrepreneurs, I just don't buy the line that their crap doesn't stink like everyone elses.

Pony up or get off the bus.

Thanks

[AIMAI]

Why does madrocketscientist or anyone else have to "fire workers" in order to reduce the tax load on the business owner's own income? Bizarrly enough you could keep your own income at any level you want by either giving away some portion of your income in charity, paying your workers more than the bare minimum to survive, working less and paying yourself less, or simply charging less for your work. Mr. Aimai works for a guy who has artificially limited his own salary for years for fear that Mr. Aimai and the others working for him will peg their salary expectations to his salary. He can always say "I only make X so you only make X-Y" and he conveniently leaves out the fact that he and his wife as the company owners don't rely on their stated income.

This really isn't rocket science. And as others have pointed out--hell, I pointed it out in another thread--if rich lawyer 1 doesn't want to work for his dime then poor lawyer 2 will happilly step in and work for his clients. That's capitalism for ya'.

Brief history note--the refusal of certain communities to work for cash, or to work harder for cash than was absolutely necessary, is precisely what caused colonial governments of all kinds to institute cash taxes and fees. It forced an unwilling populace to perform work that the various capitalist firms wanted done, but which they couldn't force (sucessful) subsistence or peasant economies to engage in. Its one reason we stripped collective property ownership from native americans and forced them into private property modes of farming. People have always decided, where they were free to, just how much labor they wanted to put into the money economy. Our latter day peasant resistor who chooses to spend more time on the golf course (hope you make enough to pay those country club fees!) than earning mere filthy lucre is in good company with other back to the land hippy types and our now dead native american population in valuing the personal over the mere monetary.

aimai

[Tony P.]

If he decides to scale back because he doesn't want to pay taxes, then a few people lose jobs.

AAAAARGH!!! Not this crapola again. "He" can cut his own personal tax bill by simply paying his workers more.

Gross. Net. Different things.

--TP

[d'd'd'dave]

//Under the current FICA limit, there's no effect from either change.// This is true. However, Obama and his people have been talking about raising or eliminating entirely the fica limit. I will stipulate that he has made no concrete proposal yet. When he does, this is how it will impact the $300,000 dollar attorney Eric used in his example.

If he is a sole-proprietor or partnership he will pay the following on all dollars beyond $250,000:

federal marginal rate 39.6
self-employment tax 15.3
total 54.9

plus 15.3% on the difference between approx $107,000 and $250,000 which is $21,749. In other words, he will have to earn $48,512 beyond $250,000 in order to cover this new tax burden. After he earns $298,512, he gets to keep $0.451 of every dollar.

If he is a corporation, he could gain shelter from the added fica tax by limiting his salary. However, any earnings above his salary would be taxed at the corporate rate (which is currently no worse than the individual rate) and would be inaccessible to him. they'd be locked away in the corp until sometime in the future when he sold the corp or liquidated it. Using the corp money to give himself benefits makes it taxable as wages.

Either way, the fun of the extra earnings is diminished to some extent. It is not as laughable as Eric suggests to think the attorney may be demotivated.

//"and not use the money to pay down debt"

Which would justify capping ones earnings at $249,999 how exactly?//

It wouldn't.

[jrudkis]

Slarti,

Washington.

Employees are generally entitled to overtime compensation for hours worked in excess of forty per week. Unless an employee is exempt from the Minimum Wage Act or from overtime requirements (see page 6 of this policy), he or she must be compensated at an overtime rate of at least at one and one-half times his or her regular rate of pay for all hours in excess of forty in a seven-day workweek. See RCW 49.46.130(1). Overtime pay is required regardless of whether the employee is paid hourly or in some other manner, (commission, piecework, salary, non-discretionary bonus, etc., combinations thereof, or an alternative pay structure combined with an hourly rate) or whether payment is made on a daily, weekly bi-weekly, semi-monthly, monthly or other basis.
...
8. Who is exempt from overtime?
RCW 49.46.130 includes the following exemptions from overtime law.
(a) Employees exempted from the Minimum Wage Act (MWA). The entitlement to overtime comes from RCW 49.46.130, which is part of the MWA. Therefore, those who are exempted from the definition of employee under the Minimum Wage Act are not protected by the MWA, nor is it required they be paid overtime wages. See ES.A.1, Minimum Wage Act Applicability, for a detailed discussion of the exemptions contained in RCW 49.46.010(5). Also see ES.A.9.3, ES.A.9.4, ES.A.9.5, ES.A.9.6, ES.A.9.7, and ES.A.9.8, Exemptions from Minimum Wage and Overtime for Executive, Administrative, Professional, Computer Professional, and Outside Sales.

Definition of State adminsitrative exemption:
Must meet all three parts of the test in the state regulation to be exempt from overtime pay:
1. Meets minimum salary or fee payment requirement of not less than $250/wk
2. Primary duty consists of the performance of office or non-manual work directly related to management policies or general business operations of his employer or his employer’s customers;
3. Work must require the exercise of discretion and independent judgment.
Federal:
Must meet all parts of this three-part test in the federal regulations:
1. Meets minimum salary or fee requirement of $455/wk;
2. Non-manual office work directly related to management or general operations of employer or employer’s customers;
3. Primary duty includes discretion and independent judgment on matters of significance.

[Hogan]

She also has to pay her support staff time and a half for their overtime,

She has no part-time support staff, and can't hire any? Everyone is working a full 40 hours a week? Sounds unusual.

[d'd'd'dave]

//Are people aware of the 70-90% marginal rates un the upper brackets during the period of prolonged boom after WW II up until the upper bracket cuts of Kennedy and Reagan (were still higher under Reagan than today).//

Are people aware that the during those post ww2 boom years 1) federal spending as a percent of gdp was half what it is now, 2) there was excess industrial capacity in the US and a shortage of industrial capacity in the rest of the war-ravaged world, and 3) there were many excess laborers as gi's demobilized and not long thereafter their children entered the work force.

Different world. Different circumstances. Correlation is not causation.

[Eric Martin]

plus 15.3% on the difference between approx $107,000 and $250,000 which is $21,749. In other words, he will have to earn $48,512 beyond $250,000 in order to cover this new tax burden.

Actually, this would motivate the person in question to work more. Consider, even if the person caps income at $249,999 after deductions, they would still have to make up this portion:

15.3% on the difference between approx $107,000 and $250,000 which is $21,749

Sounds like motivation to me!

[d'd'd'dave]

//Well the question of course is: At what tax rate wouldn't you feel ill used? This is the tax rate that is calculated to generate the revenue our society requires to continue to function and allow you and everyone else to generate the income that they do. If you have a problem with the calculation that is one issue. If however you feel as a matter of principle that you should pay less then you only need to present a plan that will generate similar revenue or one that will allow that society to function at a similar level of efficiency on far less revenue. So far, no one has presented such a plan but here's your chance.//

You have pointed at the notions of efficiency and that this tax regime generates an ideal number. Facts are not in evidence for either. Facts are in evidence, however, that this is really about equalization.

[wonkie]

You'd think the reason this country exists is to make sure rich people suffer no inconvenience or distress.

Got it in one. The essence of conservative philosophy as it manifests itself in policy.

And the underlying belief system is social Darwinism.

[d'd'd'dave]

//Rather than commenting on the article's stupidity, this is quickly becoming another inane comment thread on taxation. //

Please see my comment at 1:58p which addresses the stupidity aspect.

[Eric Martin]

To clarify: If he lifts the FICA cap, the person will not have an increased incentive to cap their net income at $249,999 since they will still be subject to the lifted cap up to that net income.

[d'd'd'dave]

//they are produced, often, by the state, which licenses lawyers and dentists and such. Raising the supply of these professionals is an excellent idea//

Do you want to raise the supply by not licensing them? Or by lowering their income expectations?

[Tony P.]

If he is a sole-proprietor or partnership he will pay the following on all dollars beyond $250,000:

federal marginal rate 39.6
self-employment tax 15.3
total 54.9

Did we lift the FICA cap already?

Also, whatever happened to the notion, popular until very recently, that wage-earners effectively pay both halves of FICA just like sole-props do?

--TP

[brent]

You have pointed at the notions of efficiency and that this tax regime generates an ideal number.

No, I haven't. What I have done is suggest that wanting to pay less taxes is not, in and of itself, an argument that supports any important position. mckinneytexas would like to pay less taxes. Saying that is just about the same as saying nothing at all. Just about everyone on Earth would like to pay less taxes. That sentiment doesn't address, in any material way, the question of whether people at his income level paying less taxes is better or worse for the economy in which he earns that income. As you often do d'd'd'dave, he seems to be suggesting that his personal displeasure at having to pay more taxes is of central importance in a discussion of optimal tax policy. It isn't.

[d'd'd'dave]

//if rich lawyer 1 doesn't want to work for his dime then poor lawyer 2 will happilly step in and work for his clients. That's capitalism for ya'.//

In capitalism, poor lawyer was always there trying to attract the business but the clients preferred rich lawyer's services for some qualitative reason. Does removal of rich lawyer from the market suddenly improve poor lawyer's quality?

[roger]

The entire discussion points to a feeling of entrenchment by the propertied class. This is what happens when social mobility is stifled. Say the old Texas guy closes his doors and fires his crew. Sad. But as there is an expanding workforce and his response is to an increase in taxes rather than a decline in demand, guess what? Somebody else opens up an office and hires people. Somebody hungrier. That, my friend, is capitalism. Not the dreamland of rentiers. Given the attitudes expressed, the hungrier competitors will give better service. This is a win-win situation - pruning the deadwood, and putting more money in the pot for needed public investment.

[brent]

Does removal of rich lawyer from the market suddenly improve poor lawyer's quality?

The more salient question with respect to the workings of capitalism is: Does removal of rich lawyer from the market reduce demand for quality legal advice? The answer, of course, is no. I think it would be ill advised for Obama, or anyone else, to formulate policy prescriptions based upon any concern for a shortage in the supply of lawyers.

[Tony P.]

Does removal of rich lawyer from the market suddenly improve poor lawyer's quality?

In an adversarial legal system, yes :)

--TP

[BlizzardOfOz]

Someone should maybe point out to these wannabe John Galts that in the novel, Atlas and pals didn't cut back on their hours in protest. Actually, for the likes of Hank Rearden, such an idea would be unthinkable since his work was his passion. What they did was move to a remote island and create their own version of utopia. The rest of us should be so lucky.

[d'd'd'dave]

//In an adversarial legal system, yes :)//

Ha. Yes.

[AIMAI]

Tony P. gets the laconic prize.

And yes, of course, there's no evidence that the busyness of one dentist or lawyer is directly related to their "quality" in their profession. (This is especially true in law firms and in dentist offices where the majority of actual product is often performed by lower paid associates and assistants under the imprimatur of the more highly paid partners). But Tony P., Brent and roger make my point very nicely and succinctly.

If rich people don't want to work for their dollars like poor people do, let them eat unearned increment.

aimai

[hairshirthedonist]

In capitalism, poor lawyer was always there trying to attract the business but the clients preferred rich lawyer's services for some qualitative reason. Does removal of rich lawyer from the market suddenly improve poor lawyer's quality?

Ah, yes - the perfectly efficient, perfectly informed market assumption. A convenient way to justify many an absurdity.

[Hogan]

What they did was move to a remote island and create their own version of utopia. The rest of us should be so lucky.

Line forms here for Golgafrincham Ark Fleet, Ship B! Right this way!

[russell]

the refusal of certain communities to work for cash, or to work harder for cash than was absolutely necessary, is precisely what caused colonial governments of all kinds to institute cash taxes and fees. It forced an unwilling populace to perform work that the various capitalist firms wanted done, but which they couldn't force (sucessful) subsistence or peasant economies to engage in.

It's also what drove the enclosure laws with the accompanying loss of right of common use. Folks who used to just do for themselves were forced to do wage labor or starve.

This is the kind of conversation I'd like to have.

And they call Obama a lefty.

[d'd'd'dave]

russell 2:55

It would be an interesting conversation. Implicit in there was the notion that the restrictions (enclosures, etc) were done to enable taxation. Are you proposing to discuss removal of taxation and such barriers or just the barriers?

[jrudkis]

Bizarrly enough you could keep your own income at any level you want by either giving away some portion of your income in charity

Though this may not continue to be true:

Still, the charitable giving deduction reduction, which would limit deductions for couples making $250,000 or individuals making $200,000, provoked the most heat Thursday. Mr. Obama is counting on that provision to raise $179.8 billion over 10 years.

"Some of the reforms and offsets contained or referenced in the budget, such as the limitation on itemized deductions, raise concerns and will require more study as we determine the best policies for getting America back on track," said Finance Committee Chairman Max Baucus, Montana Democrat.

Roberton Williams, senior fellow at the Tax Policy Center, said it's impossible to calculate the exact effects of all the tax changes, but said the overall result is clear - less philanthropic giving.

"This will lead people to give less to charities if they behave the way they've behaved in the past," he said. "We've already seen a drop in giving as a result of the economic collapse. On top of that, this will just reduce the amount of giving."

Asked about that, Office of Management and Budget Director Peter Orszag said Mr. Obama took care of that by giving charities government money to make up part of the difference.

"Contained in the recovery act, there's $100 million to support nonprofits and charities as we get through this period of economic difficulty," he said.

He disputed that giving would drop, and said an economic recovery will help charities, too.

[von]

end italics

[KCinDC]

Though this may not continue to be true

Jrudkis, the proposal I've seen is to reduce the charitable deduction people making more than $250,000 get, not to eliminate it. They'd be saving 28% of contributions on their taxes rather than 35% or 39.6% or whatever. So they'd have to give more to have the same effect on their taxes, but it would still be possible to reduce their taxable income through charitable contributions.

[russell]

Implicit in there was the notion that the restrictions (enclosures, etc) were done to enable taxation

Sorry, I think I was unclear.

I don't think enclosure laws were introduced to generate tax revenue. There were lots of motivations behind them, one of which was to get 'lazy commoners' into productive employment in the emerging industrial sector. The parallel between requiring taxes and fees to be paid in cash and enclosure is that both had the effect of forcing folks who formerly had quite a bit of independence from the cash economy into that economy.

My interest in the history of the enclosure laws has to do with the loss of the commons as both idea and as pragmatic ground-level reality.

I'm not sure what a 'commons' looks like in an industrial and post-industrial economy. Is it access to land and water? Is it access to surplus manufactured goods? I don't know. It's a topic I'd be interested in discussing.

[jrudkis]

KC,

Thanks, that makes more sense.

When I read the article (Washington Times...I should have known better) it sounded like there would be a cap on total deductions from any source, so if I capped out with my mortgage deduction, I would not have other deductions like charity.

[ral]

russell, don't omit the cultural commons. Think Remix.

[russell]

Sorry, I didn't answer your question about taxes.

I'm not really sure what a tax structure looks like in a less-cash-oriented economy. Maybe there are just fewer taxes. If people have access to the means of doing for themselves, maybe fewer services are needed.

Maybe people pay their taxes in kind, either as goods or as services rendered. My sister's ex-father-in-law (follow that?) remembers rural New Hampshire folks paying off their property taxes by doing road work. In my town, some folks who are on fixed incomes buy down their tax bills by doing clerical work for the town.

Shorter me: I don't know. It would be an interesting thing to explore, although I think issues like this are basically off the map. Hard to say if they're liberal or conservative, they're just not in the discourse these days.

ral, thanks for the link, I will check it out.

[russell]

singingbone, btw, is russell, and vice versa.

[ThatLeftTurnInABQ]

I'm tired of being asked to kiss entrepreneurial ass. And I have nothing against entrepreneurs, I just don't buy the line that their crap doesn't stink like everyone elses.

Ironically, higher marginal tax rates on wages and salaries (relative to the capital gains rate) should stimulate entrepreneurship, since entrepreneurs make their fortunes via growth in the value of their equity shares in the businesses they create, rather than via wages and salaries. Does anybody seriously think that Bill Gates got rich off of his Microsoft salary?

So as long as the top marginal rate is well above the capital gains tax, there is no disincentive being created for entrepreneurs to create new businesses, as they can make more money that way than by drawing a salary from somebody else's business.

IMHO roger at 2:43pm has it right - what is really at stake in this fight over the top marginal rate is the income share of an upper middle and low-rank wealthy class which has developed a rentier sense of entitlement, entrenchment, and Social Darwinist self-justification as a consquence of the financialization and headquarterization of the US economy, and who feel that they are insulated from the vicissitudes of this downturn. I doubt you will find many true risk taking entrepreneurs in this group, since their defining characteristic seems to be the attitude that their marginal labor is motivated purely by compensation rather than an internal drive to excel, that they have nothing to worry about right now (why else threaten a partial labor strike?), and by inference that serious economic risks are something that happens to other people.

[Tony P.]

I'm not sure what a 'commons' looks like in an industrial and post-industrial economy. Is it access to land and water?

How about air? Specifically, access to the atmosphere as a dump for CO2, say?

Charging for CO2 emissions is the opposite of treating the atmosphere as a commons. So maybe that's not a good example of what you're looking for.

--TP

[russell]

How about air?

I think that people sometimes mix up the idea of a public good, in the economic term-of-art sense, and a commons. I don't think they're really the same.

Air is probably the textbook example of a true public good. One person's consumption of it doesn't reduce it's availability to somebody else, and short of strangulation there isn't a way to exclude someone from breathing.

Neither of these things are true of historical commons. Common use was more a way of communally managing and negotiating use of finite resources, and exclusion in the form of denial of access or stinting was often an aspect of that management.

Quite often, commons were privately owned, the issue was just that ownership was limited in the sense that other folks could make certain kind of uses of your property.

This idea still shows up in some places, where folks can't be excluded from walking on property, or can't be denied access to beaches below the waterline, regardless of ownership.

It was, basically, just a way for a community to manage finite resources. It worked quite well in quite a number of places.

I'm rapidly approaching my Peter Principle cut-off point on the topic of commons, so I'll leave it for now.

[Bernard Yomtov]

.... higher marginal tax rates on wages and salaries (relative to the capital gains rate) should stimulate entrepreneurship, since entrepreneurs make their fortunes via growth in the value of their equity shares in the businesses they create, rather than via wages and salaries.

Another thing that would stimulate entrepreneurship is a more rational health insurance system. Reducing the extra costs, and eliminating the possibility of losing coverage entirely, would certainly reduce the risks of entrepreneurship somewhat, not to mention making it easier for the entrepreneur to hire workers.

[Nell]

The "journalist" who wrote this story, Emily Friedman, has only been working at her trade for a year and a half. She graduated from college with an undergraduate degree in journalism in 2007.

Clearly not the brightest light on the porch, but the people who should have spiked a story this stupid are the ABC editors. Who clearly know better but want to fan the phony "class war."

[liberal japonicus]

I like the LGM take on this

That's all about reinforcing extremely simplistic narratives about hard work being rewarded by "the market," and progressive taxes being a poison that undermines social virtue.

[TheWesson]

If a high marginal tax rates can persuade the FIRE parasites to be less assiduous in doing damage, then so much the better.

[david kilmer]

"I think it's a symbolic protest, Eric, similar to those people who swore they'd leave the country if Bush became President back in 2001, and didn't."

I like the tea-bagging idea better.

[AndYnot?]

(why else threaten a partial labor strike?)
-TLTiA

Nice way to phrase this.

So, these "Galts" are saying that they're going to stage a work stoppage or slowdown because they are protesting a reduced income from the same amount of labor and are expecting or hoping that others will join them?

Clearly, what they need is a union.

[Carleton Wu]

I like the tea-bagging idea better.

I think I know what you mean, but I am still *not* going to click on that link. Better safe than sorry.

[Turbulence]

I'm not sure what a 'commons' looks like in an industrial and post-industrial economy. Is it access to land and water? Is it access to surplus manufactured goods? I don't know. It's a topic I'd be interested in discussing.

It might be open source software or collaborative projects like Wikipedia. With most open source software, large companies own most of the code, but the structure of the licenses ensures that competitors can freely share innovations without worrying that any one competitor will defect and offer a closed source version.

[russell]

It might be open source software or collaborative projects like Wikipedia.

I'm very supportive of open source software.

That said, how does it translate into something you can eat?

Typical examples of commons from pre- or early-industrial society are common land which you have the right to farm or graze animals on, or rights to collect dead wood or turves for fuel. It's a pretty direct concept -- you have right of use of some resource (often regardless of who owns it) to take what you need, within some limits, for your own subsistence.

So, you can 'make a living' without having to work for someone else, or without even participating in a cash economy. Although cottagers frequently did a variety of things for cash as well, just largely on their own terms.

What's the analogue today? Is there one?

Can you barter software skills for food, shelter, and fuel?

[d'd'd'dave]

It is still okay for you to take turves. Please help yourself.

There are still places where you can subsist on public lands. People subsist by eating fruit, fish and living under tarps on the NaPali coast. Please help yourself.

[Randy Paul]

She has no part-time support staff, and can't hire any? Everyone is working a full 40 hours a week? Sounds unusual.

Not in a law firm.

Got it in one. The essence of conservative philosophy as it manifests itself in policy.

And the underlying belief system is social Darwinism.

The only kind of Darwinism the wingnut right ever believed in.

[JanieM]

"Why kill yourself working if you're going to give it all away to people who aren't working as hard?"

The arrogance of this assumption that income varies directly in relation to how hard you work is so disgusting it's hard to address without violating the posting rules.

The hardest-working person I know is the man who mows and plows and takes trash to the recycling station for my household and as many others as he can fit into the hours of the week when he's not asleep (and in the winter when the blizzards come one after another, sometimes that's damned few). He's in no danger of having to worry about his marginal tax rate....

[Randinho]

The editors apparently decided to do their jobs and posted corrections in the article.

[KCinDC]

That's amazing, Randy. I wish I had the earlier version of the story to compare, so I could see exactly what changed.

[Siryn]

Quite candidly, this is how Madoff was allowed to happen. Too many lawyers who don't know shit about math.

[russell]

"Why kill yourself working if you're going to give it all away to people who aren't working as hard?"

The arrogance of this assumption that income varies directly in relation to how hard you work is so disgusting it's hard to address without violating the posting rules.

What JanieM said.

The biggest problem with money is it's tendency to turn some people into @ssholes.

There are still places where you can subsist on public lands. People subsist by eating fruit, fish and living under tarps on the NaPali coast. Please help yourself.

Yes, lots of people harvest tangible goods from public land. Hunters and fishermen, obviously. In lots of rural areas in New England, and no doubt other places, that's where some families get their meat. Other folks wildcraft edible goods like mushrooms, nuts, etc.

I say that's a good thing. Too bad it isn't extended into a broader range of areas.

The folks in Alaska treat their mineral assets as an asset held and managed more or less as a commons by the public. It works well for them, they don't need to tax their folks heavily to deliver public services.

Don't know anywhere that turves are actually available for the taking, nor do I think there are many places in the US where turves are a particularly useful good. Most of the dirt around here doesn't burn. Different strokes.

To the degree that your comment here was intended to be sarcastic, I'd say you're missing something that should be attractive to conservatives. Historically commons were locally managed, and provided lots of people who weren't wealthy with the means of providing for themselves.

[Catsy]

Looks like Moe, ObWi alumnus and Redstate's resident attack poodle, has finally gotten in on the action on this one. If you haven't read his exchange on that thread with commenters haydus and Chris_B, do.

The mendacity is absolutely staggering--two people in a row try to explain marginal tax rates to him and point out how they don't work that way. His response is to ignore the numbers entirely, demand they acknowledge that it's this poor dumb woman's choice to work less to pay less taxes, and put words in their mouth and ban them when they insist on sticking to the facts about our tax code.

This is probably the most striking example of Moe's contemporary M.O. when challenged on Redstate about Republican BS. It goes far beyond garden variety dishonesty; this is a deliberate, willful contempt for inarguable mathematical truths that anyone can check for themselves.

I shudder to think what it must be like to live inside the mind of someone like that--to know that the things you write in public, day in and day out, are embarrassingly obvious lies, to know that you have zero credibility with anyone who isn't just as dishonest as you are--and to keep doing it anyway.

Gah.

[Slartibartfast]

It is everyone's choice to do as they please, with the result that they avoid paying any taxes at the upper-bracket-rate, Catsy. It may not be a choice you agree with, or find to be particularly sane, but people do irrational things all the time.

I think that pretty much encompasses Moe's point. I've been having pretty much the same conversation (from the other direction) with some folks over at Jeff Goldstein's blog, and I have had a little more luck with open discussion, even if I haven't had a lot of people agree with me.

[Catsy]

It is everyone's choice to do as they please, with the result that they avoid paying any taxes at the upper-bracket-rate, Catsy. It may not be a choice you agree with, or find to be particularly sane, but people do irrational things all the time.

This is a red herring from top to bottom, Slart. Neither I nor anyone else has been saying it isn't this woman's choice. The only person raising that point was Moe, and he was using it as a dodge to avoid dealing with being challenged about marginal tax rates.

Neither of the two unfortunates at Redstate said anything different than what you yourself said on that PW thread. The woman in the article is completely misinformed about how our tax system works, which undermines the entire premise of both the article quoting her and the people approvingly linking to the article: that high wage-earners will be forced to earn less and be less productive in order to avoid having their income taxed at 39% instead of 35%.

I think that pretty much encompasses Moe's point.

No, it really doesn't. The only point Moe had in the thread I linked was to prevent facts from undermining his criticism of Obama.

I've been having pretty much the same conversation (from the other direction) with some folks over at Jeff Goldstein's blog, and I have had a little more luck with open discussion, even if I haven't had a lot of people agree with me.

Yeah, I read that thread and was actually going to compliment you on your dogged attempts to inject facts into the discussion. I don't know that it really had much effect on the landscape there, though.

I mean, seriously. We're not talking about an arcane bit of con law interpretation, or an ideological disagreement. We're talking about people who refuse to admit that one of their criticisms of Obama is premised on a fundamental misrepresentation of how taxes work. This isn't ideology. This is math. Pace Rove, they aren't entitled to their own math.

[Slartibartfast]

he was using it as a dodge to avoid dealing with being challenged about marginal tax rates.

Moe didn't say anything at all about marginal tax rates, as far as I could see. How can you get challenged on something you didn't say?

that high wage-earners will be forced to earn less and be less productive in order to avoid having their income taxed at 39% instead of 35%.

Um...or they may elect to lower their income so they're not paying the upper-bracket rate on any of their income. Insane, but not demonstrative of a misunderstanding of the tax code.

People are crazy, and it's kind of silly to expect them to always behave sanely. And of course, a certain percentage of people are going to have an incorrect picture of reality. I just don't know that Moe is one of them. People will act counter to their self-interest if they think they're taking a moral stand.

[Slartibartfast]

Of course, banning them because they wouldn't admit, right away, that the woman in question had a perfect right to do as she said she would, that isn't how I'd run a blog. If I were running one. I'm not a big fan of the hair-trigger banning that Redstate does.

[russell]

Yes, but you must admit that it's their right to ban whoever they like!

You must say this in your next post!

Or.... BLAM!!! :)

[d'd'd'dave]

catsy
did you read my March 3, 1:58p comment? obama's proposed tax regime does impact the $250,000 earner more than the small change in the marginal rates suggests.

[Catsy]

Moe didn't say anything at all about marginal tax rates, as far as I could see. How can you get challenged on something you didn't say?

*deep breath*

Walk through this with me. It is really not complicated.

Moe--among others--linked to the article about the dentist in order to support the argument that raising the top marginal rate would force affected wage-earners to be less productive in order to reduce their tax burden. He did not link to it for his health. Without the assumption that the article supports the argument he's making, there is no purpose to linking to it in that context.

The article not only does not support this argument, it pointedly illustrates that people making said argument either do not understand the tax code, or are misrepresenting it. It reflects badly on anyone linking to it with approval of its content.

If you really want to get into a meta-discussion about whether or not linking to something to support your argument constitutes "saying" what's in the link, we can have that discussion, but it strikes me as an extremely pedantic waste of time. If I say blacks are inferior, and link to an article that discusses their genetic makeup, it's extremely disingenuous to protest that I didn't say anything about their genes when someone challenges the content of the linked article.

Um...or they may elect to lower their income so they're not paying the upper-bracket rate on any of their income. Insane, but not demonstrative of a misunderstanding of the tax code.

What on earth does this have to do with our tax-challenged dentist? Read the direct quotes of what the woman in question said. She is not acting in an informed way contrary to self-interest in order to make a stand on principle. She clearly describes her intent and reasoning, and in the process just as clearly demonstrates a complete misunderstanding of the tax code.

Saying that she has a right to hurt her own interests out of principle is true, but one hundred percent irrelevant to what she's actually doing and why. That is why it was a dodge when Moe brought it up--I defy you or anyone else to quote a single word from haydus or Chris_B that gainsaid the woman's right to work less, or any point where Moe in any meaningful way acknowledged that their factual argument was correct (or for that matter, even attempted to refute it).

Of course, banning them because they wouldn't admit, right away, that the woman in question had a perfect right to do as she said she would, that isn't how I'd run a blog. If I were running one. I'm not a big fan of the hair-trigger banning that Redstate does.

You can see this little game of his at work over and over and over again on Redstate. It goes sort of like this:

1. Commenter says something Moe doesn't like
2. Moe disregards the merits of what they said and gives them an ultimatum to either bark on cue--usually in the form of admitting to words he puts in their mouth, or writing an essay about why they are wrong--or be banned
3. Commenter responds with confusion at the non sequitur and attempts to re-engage on substance
4. Moe bans commenter

[lostintranslation]

Of course, banning them because they wouldn't admit, right away, that the woman in question had a perfect right to do as she said she would...

What's to admit? Who is disputing this? How is this even part of the discussion? WTF?

[Tony P.]

Slarti,

For years, I have been recommending do-it-yourself tax cuts to people who complain about high marginal rates. It's gratifying to see some of them adopt my suggestion.

Catsy,

I don't think that "he woman in the article is completely misinformed about how our tax system works". I am willing to give her credit for enough intelligence to believe that she's merely lying.

--TP

[d'd'd'dave]

ps catsy

In fact, a $300k earner after obama's tax changes will be able to take home only $671 more dollars than a $250k earner was able to before obama's tax changes.

I hope you can see that it is not a pleasurable concept for a $300k taxpayer to digest.

[KCinDC]

Dave, please show your work so we can point out where you made your math errors. Presumably something like your 1:58pm comment from yesterday, in which you mix up total taxes and tax increases.