Friday, April 22, 2011

Taxes Are NOT the Answer

Large Tax Increases are Not A Semantic Question
In other words, for the poorest 20% of Americans (who make less than $20,000 a year, with an average income of $11,500), taxes go from about $460 to about $920. For the middle quintile (making an average of $50,000 a year), taxes go from around $7,000 to over $12,000. For those in the top quintile, with an average income of $167,000, taxes jump from a $41,000 to $62,000.

Turn it around and look at the effect on incomes: after tax incomes drop from $11,040 to $10,580**, in the lowest quintile; from $43,000 to $38,500 in the middle quintile; and from$125,000 to $105,000. And the higher you go, the stronger the effect is; for the top 1% (which starts at AGI of $400,000), you reduce their minimum income from a bottom of roughly $275,000 to perhaps $210,000, either through taxes, or through lower capital income as a result of higher corporate income taxes*.

Can this be done? Maybe. Probably, at least on the lower tiers, who don't respond to tax rates the way the wealthy can. But it won't be easy or moderate. I'm sure there are a number of people in my readership where two spouses take home $125,000 between them. How easily can you guys chop $20,000 out of your budget? And though the percentages are lower, in practical effect it's even worse for the bottom: if you're making minimum wage, $460 is several weeks worth of paychecks.

Now, if you don't want to take more money from the lower quintiles, you have to take even more from the top quintiles. But the effective tax rate on the top 1% is already almost 50% if we raise all taxes by the same amount. Those people also pay other taxes: property taxes, state income taxes, sales taxes. How much of their income do we think the state can claim? How much do we think it should claim?
Read the whole thing and weep.

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