Explaining the U.S. Tax System to Stupid Reporters

Yesterday, Jonathan Chait wrote a piece about an article at ABCNews.com that alleged a “trend” toward families making $250,000 trying to get their incomes down to just below that figure, so they would fall under the income amount at which Pres. Obama’s proposed budget would increase their taxes. As Jonathan pointed out, the reporter passed along this supposed astute financial strategy without debunking the false premise behind it:

Now, the obvious objection here is that the tax code doesn’t work that way. A tax increase affects the marginal dollar that a person gains. That’s means only every dollar over $250,000 is taxed at a higher rate. Obama is not proposing a tax system whereby somebody who goes from $249,999 to $250,000 suddenly becomes poorer. Nobody has ever enacted a tax hike like that in the history of the United States.
[…]
… The article then quotes a financial advisor who explains the way that tax brackets rates work, but then quotes a right-wing business professor and the subjects of her article fulminating about class warfare. Pretty clearly the reporter started off on her mistaken premise, found some subjects who shared her ignorance, and then came across a financial advisor who gently corrected her. But, instead of nixing the collosally uninformed article, or writing a different kind of article (“Rich Morons Decreasing Own Income Due To Lack of Tax Code Knowledge”) she instead plowed ahead with her initial premise.

Well, ABC News must have gotten a lot of heat about this uninformed rot, because there is this Editor’s Note at the top of the article today:

Editor’s Note: Yesterday ABC News published a version of this story which some readers felt did not provide a comprehensive enough analysis of Obama’s tax code for those families making $250k or more. ABCNews.com has heard those concerns and after review has decided to post an updated version of the story below.

The article then follows the anecdote about the idiot wealthy family with several paragraphs of explanation about why they are completely out of their minds:

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?”

But Gary Schatsky, a financial advisor and the president of NY-based Objectiveadvice.com, said that reducing your income won’t help a great deal because of the way the country’s tax system is set up.

“Just going over $250,000 doesn’t mean it impacts your tax liability for every dollar before that,” said Schatsky, “It impacts you at the margin.”

Marginal or graduated tax systems like the one in the U.S. means only the money earned over a certain amount — $250,000 in the case of Obama’s proposal — will be taxed at an increased percentage.

For instance, for a person earning $350,00, the first $250,000 of income would be taxed at lower tax rates, while the last $100,000 would be taxed at Obama’s higher rate.

“Only the incremental earnings above [a quarter of a million dollars] are taxed at a higher rate,” said Schatsky.

“[T]o focus keeping your income below a quarter million dollars is not going to have any spectacular magic for individual tax payers,” said Schatsky. “The difference between $249,999 and $251,000 will probably have zero tax impact.”

Schatsky adds that he is not aware of very many people who would rather take a pay cut than pay taxes on the income that falls into a bracket that is taxed more.

“The last time I offered someone $500,000 of additional income there was very little instance of people saying ‘ no thank you,'” he said.

Once again, blogtopia teaches the mass media how to do journalism.

Via Memeorandum.

4 Responses to “Explaining the U.S. Tax System to Stupid Reporters”

  1. radical_moderate says:

    “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 mind-boggling stupidity of this comment is stunning; re giving it all away to people who aren’t “working as hard,” does she mean that the people who clean toilets in private homes or businesses, most enlisted Military, the guys who haul trash, or the citizens who teach our children, not to mention the working poor who sometimes hold down 2 or 3 job aren’t “working as hard” as this numbskull?

    This bone-headed comment gives clarity to my problem with the right-wing: that is that these people are Utopians who believe that America has a level playing field where “hard work” always pays off in huge financial gain, and that those who toil in low-paying jobs are “lazy.” Not only that, but these people seriously believe that affluent folk “deserve” low taxes on merit (never mind Hedge Fund Managers who do little labor, and accumulate massive wealth despite that, yet pay less in income taxes than their lowly secretaries.) It is the middle-classes who need a tax break; the affluent have experienced healthy income growth until very recently while the middle-class has lost financial ground. It appears, like most of the radical right, that this idiot cannot see that a floundering middle-class signals a death knell for economic growth; as usual, the blind bigotry of rightwing idealogy has rendered critical thinking null and void.

  2. Kathy says:

    Well said, rad-mod.

  3. Bryan says:

    What about the payroll tax window?

  4. Bryan says:

    ABC has updated the story, apparently in an effort to reflect the complexities of the tax system.

    “Poczatek argued that by reducing her income from her current $320,000 to under $250,000 by having her dental hygienist work fewer days and byl treating fewer patients, she would avoid paying higher taxes on the $70,000 that would be subject to increased taxation if Obama’s proposal is signed into law.

    Additionally, any interest from a checking or savings account or capital gains from stocks, would also count as taxable income.”

    And perhaps more importantly:

    “‘If the value of all your itemized deductions goes from a 33 percent level to a 28 percent level than there would be a reason for people to do dramatic things to reduce their incomes,” said Schatsky.”

    And that analysis doesn’t even touch the donut hole Obama proposes for the payroll tax (FICA).

    The analysis from Chait and CFLF is no better than the original story from what I can see.

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