Pity the rich

Jacob Heilbrunn wants to know, “Why Does Obama Keep Trying to Raise Taxes?“ Since I don’t have the energy to engage the obvious discussion about a giant budget shortfall that can’t be addressed solely by spending cuts, there’s one little comment Heilbrunn makes that’s indicative of some common confuson over the tax system:

In pursuing this policy, Obama is trying to redistribute wealth. He unequivocally states that the rich—those couples earning $250,000 or more in his definition—must pay more to help finance government programs and, in theory, reduce the debt (though historically Congress has simply taken the money and run with it). If America were flush, Obama’s espousal of higher taxes might make sense (though $250,000 goes a lot longer in Dubuque than it does in Boston, which is one reason why Obama’s definition of the rich is questionable).

Two things: First, Heilbrunn is right that Boston’s cost of living gives a $250,000 income less in the way of spending money than it would in Dubuque. He draws an odd conclusion for that observation, though — that therefore nobody should have their taxes raised. If the cost of living makes comparable dollar amounts unfair, why not ask people in low-cost areas to pay more? (This is not a policy I necessarily support, but it’s the logical conclusion of Heilbrunn’s comment.)

Second, so what if $250,000 isn’t spectacularly wealthy? People making around that amount will barely pay any more taxes under Obama’s proposal than they would otherwise. That’s the beauty of marginal tax rates, which even newspaper editors seem to forget exist.

A married couple with a taxable income of $250,050 pays an annual federal tax bill of $59,971, or 23.98% of their income, under current regulations. Theoretically if the rate paid on income above $249,999 was raised from its current 33% to, say, 35%, that couple would owe a bill of … $59,972. That’s right — a couple who made $50 more than the cutoff of 250k would pay a grand total of one more dollar in federal income taxes. That hardworking couple would have to sacrifice a stick of gum, but I don’t think that’s much to ask in tough economic times.