Tuesday, March 03, 2009

a major booboo from ABC News

Ok, I'm really surprised by this one. Those of you who know a little bit about taxes are going to get a laugh out of this one. From ABC News' Emily Friedman:
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.

So far, Obama's tax plan is being looked at skeptically by both Democrats and Republicans and therefore may not pass at all.

"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?"

Ok, there's a fundamental misunderstanding of the way income taxes work in this article that completely undermines its entire thesis. Can you see it? Admittedly, I did not know this (yay Turbotax!), but I'm not a journalist writing about tax brackets without understanding how tax brackets work.

Here's the thing: The federal income tax is progressive. That means that when you move up to a new tax bracket, it's only the extra income that is subjected to the new tax rate. That is, if Barack Obama says incomes of $250k/year and over will be taxed 39%, and you make $260k/year, you only pay 39% on the $10,001 that put you into that tax bracket. As Wikipedia puts it:
A progressive tax taxes differentially based on how much has been earned. For example, the first $10,000 in earnings may be taxed at 5%, the next $10,000 at 10%, and any more income at 20%.
Thus, it makes no sense to lower your pay under $250k because the person who brings in $251k will always make more than the one making $249k.

Says Jonathan Chait at TNR:
This article is obviously an outlier, but it is an extreme manifestation of a broader phenomenon. Clay had a good post about how Politico's Jeanne Cummings has turned into a sounding board for right-wing economic notions. And Matthew Yglesias had a good point about how the media massively overrepresents the perspective of the rich in reporting and commentating on the tax debate. (It has framed Obama's plans as a tax hike when the vast majority of Americans will experience it as a tax cut.) Sadly, I think the next few months are going to bring us a massive surge of sympathetic and/or uninformed coverage of the tax debate from the perspective of the wealthiest segment of America.

Then again, it can be hard to consider ABC News a "serious" news organization sometimes.

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