Throwing the 1% under the bus for the 0.1%?

by Joshua Tucker on November 23, 2012 · 13 comments

in General Politics,Political Economy

The New York Times reports the following proposal is on the table in negotiations over raising additional tax revenue so that Republicans can say they have not allowed marginal tax rates to rise:

One possible change would tax the entire salary earned by those making more than a certain level — $400,000 or so — at the top rate of 35 percent rather than allowing them to pay lower rates before they reach the target, as is the standard formula. That plan would allow Republicans to say they did not back down in their opposition to raising marginal tax rates and Democrats to say they prevailed by increasing effective tax rates on the rich

The article then goes on to report how much revenue this (and other) proposals would raise, but it misses what I think is the most important point of this proposal: if the Times is correct, it suggests that Republicans are apparently now willing to raise taxes on the rich in order to avoid raising them more on the super-rich.

Here’s my logic. This change will have no effect on anyone making under $400,000 a year. But for everyone making over $400,000 a year, their tax bill will go up by the exact same amount because the proposal will only change how income up to $388,350 (where the top rate of 35 percent currently kicks in) is taxed. The increase in one’s tax bill will therefore be the same if you are making $400,000/year, $4 million/year, or $40 million/year. This would obviously not be the case if the highest bracket reverted to the Clinton-era level of 39.6%. Just to give an extremely simple example without taking into account deductions or the like, avoiding a 4.6% increase in income over (let’s say) $400,000 a year would save someone making $500,000 a year $4,600; it would save someone making $5 million/year $211,600; and someone making $50 million/year would save a whopping $2,281,600!

So maybe this is what the post-Citizens United world is going to look like? An anti-tax party that is willing to stomach a tax increase for those making $400,000/year + so long as they protect the super-rich from an even bigger tax increase? From a campaign finance perspective, perhaps this makes sense: someone making $500,000 a year can not single-handedly keep your campaign afloat; someone who can write you a $5 million check, however, possibly can.

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