Re: We will never agree on this and therefore it is pointless to talk about!
 

The problem with that statement is that $35/week equals $140/month, which, in a 529 plan will probably cover the cost of an 8 year-old's education at a state school, once you factor in student loans and aid. And what's more, even if it pays just enough for a kid to go to Vo-Tech and become an electrician instead of a garbage man, that's still movement up.

Like Sidd said, you're a real man of the people.

Re: We will never agree on this and therefore it is pointless to talk about!
 

Unless the 529 plan takes it in the ass for the past 6 months. Ugh.

Re: We will never agree on this and therefore it is pointless to talk about!
 

Wait a second. That sounds like Hank's momma's plan. Are you confusing the two?

TM

Re: We will never agree on this and therefore it is pointless to talk about!
 

Doesn't that mean you're betting against the Obama plan working?

Re: We will never agree on this and therefore it is pointless to talk about!
 

Aren't the two the one and the same?

Eat The Rich
 

From Volokh:

[David Bernstein, February 26, 2009 at 11:03am] Trackbacks
Reminder of Obama's Campaign Promise: A Net Spending Cut: Obama, in the third debate, on the video below within the first minute: "what I've done throughout this campaign is to propose a net spending cut.... What I want to emphasize ... is that I have been a strong proponent of pay-as-you-go. Every dollar that I've proposed, I've proposed an additional cut so that it matches."

...

Also, I wonder how Obama's high-income supporters in high-tax, high-cost areas like NYC, California, and DC are feeling right now? According to an article I read today, the top 7% of taxpaying families make over 250K a year, while the top 1% make over 380K. So the vast majority of those affected by Obama's tax plans are in the 250-380K range.

If you live in DC, on your marginal dollar of you'll be paying 39.6% in federal taxes, 10% in DC income taxes (with no deduction thanks to the AMT), ... oh, and that 800K mortgage you took out in 2004, on which you pay 50K a year in interest? Instead of a 20K deduction, it will be 14K. And that's not counting the inevitable push to add 6% or so in social security taxes (really, 12%, half payed by the employer). Your other deductions with face similar limits. For a couple with adjusted gross income about 250K, I'm estimating a marginal tax rate without additional social security taxes of around 52%, 64%, including the employer share, if new social security taxes added.

Tax the rich?

My friends in this income bracket tend to have have high mortgages, work 60-80 hours a week, pay 40-50K or more a year for child care (a nanny is necessary when you often work into the late evening--and even day care for two kids in the DC area costs close to 40K a year), and have six figures worth of student loans, primarily from professional school, that they are still paying off. In other words, approximately 100K of their pretax income is taken up by their student loans and child care costs, which are the equivalent of "startup costs". Their mortgage costs may seem excessive, but you don't easily make six figures in low-housing cost cities like Des Moines, and living in outer suburbs is very difficult when you work 12 hour days.

If a hypothetical couple's initial income is a total of $300K, and they work an average of 70 hours each, and assuming two weeks vacation, they are in effect getting a grand total of $28.57 an hour for their labors, and a fair percent of that is going to pay interest on the mortgage. I'm sure they are glad to know that they are rich enough to be taxed at over 50% of their marginal dollar.

UPDATE: Of course, the situation described above only applies to some fraction of the relevant taxpayers, but in my experience, young professional couples in large urban areas were among the most enthusiastic Obama supporters. Yet they also find themselves lumped by his administration into the category of "the rich," when, because of scenarios like the one described above, they certainly don't think of themselves as such, and indeed, in practice are not, despite their high gross income.

For that matter, my friends and acquaintances in such situations who supported Obama tend to be somewhat fiscally conservative, but voted for Obama for other reasons. In part, I think his calming rhetoric on economic policy (see video above) persuaded them that he wasn't going to govern as a "tax and spend liberal," so they could vote on, e.g., the Iraq War, abortion, et.

Re: Eat The Rich
 

Thanks for asking. I'm feeling fine.

Really? Still? Having been out of school long enough to get to this income level, have a house with a big mortgage, and have kids?

Perhaps I need to do some informal research, but I haven't heard much griping. Wonder why?

Jindal's Street Under a Different Administration
 

http://www.geekologie.com/2009/02/25/lava.jpg

TM

Re: Jindal's Street Under a Different Administration
 

Looks like the lower 9th ward under the Bush administration.

Re: Eat The Rich
 

Boody-hoody-hoo-hoo.

Attention young urban professionals! Wanna feel rich again? Go to a bar, a real bar, and meet someone other than lawyers and bankers. You may have to talk about something other than how much you paid your nanny last year, but you can do it -- because you're smart.

Re: Eat The Rich
 

And here you might as well fire up a siren for Flower to come here and write about Applebee's. I applaud your spirit, old man. I applaud your spirit.

Re: Eat The Rich
 

Wonkette's been following the same developments:

But let me ask this - how many of those hyper work aholic two professional families still get to work 70 hours a week? One is showing up at JP Morgan and spending the day slaving over their resume and trying to convince the folks they used to lend to to deposit money with them instead, and the other is showing up at Cadwalader and trying to bill four hours a day cleaning up old minute books, taking a long lunch with someone who might hire them someday, and spending the rest of the day trying to rewrite their resume so it doesn't look like they do debt deals.

So I think we've all got bigger concerns right now than a marginal tax rate on money that's not being made.

Re: Eat The Rich
 

Don't get me started on that group of people, what I found alarming is a potential 64% marginal tax rate.

Re: Eat The Rich
 

Kind of like I said earlier: Shut the fuck up and pay the tax.

Re: Eat The Rich
 

Of course he gets that by taking 39.6, adding 10% for DC, assuming no AMT fix, saying the disregarded deductions add, oh, maybe a few times what they do now, kicking in a few more percent because, hell, someone will increase social security or take the cap off or something, adding some more, rounding up, and then rounding up again.

The tax system has screwed the people in the $250 to $400 K range for a while, with the disregarded deductions and the "bump" and a bunch of other nifty little take backs, but if you took that math seriously, I'd like to talk to you about the benefits of purchasing a time share.

Re: Eat The Rich
 

Sounds like at least 8 people (or varying ethnicity and/or orientation) out of work.

Re: Eat The Rich
 

Let me ease your mind. Before someone hits that kind of marginal rate, they've burned through the entire phase-out on their deductions and exemptions, their AMT credits (because at that rate they aren't paying the AMT, regardless of what the dude you quoted claims), and they're making in the area of $750,000/year.

And, incidentally, that 64% rate is the marginal rate on exactly one dollar of income. Because once you burn through the phase-outs, you're simply paying a straight 35% FIT plus whatever your state income tax rate is.
That's right. I said the 64% marginal rate applies to one dollar of income, and even then it only applies if you ignore the ramping up of the phase-out and go from zero phase-out at $275,000 AGI to the ceiling of the phase-out.

Re: Eat The Rich
 

Your posts often remind my of why I am happy not to be a tax lawyer.

And also tend to confirm for me that it does no good at all to worry about how much I pay in taxes. It's a lot. Whatever.

Re: Eat The Rich
 

If FICA is uncapped (an actual discussion, if not yet a proposal), after 2010 (when the Bush cuts sunset), 39.6 + 8.5 (the real number in DC) + 6.2*2 + 1.45*2 = 63.4 for the self-employed in DC with AGI over ~$400k, no? If that's not the real math, please show* where it's wrong.


*Without relying on "well, FICA won't be un-capped"; even tho I think full uncapping is more of a scare tactic to get to some sort of "means-testing" for receiving social security.

Re: Eat The Rich
 

Actually, he says 64% without social security. Even if you're trying to get there with SS, you're including both employer and employee share of FICA without any deduction (half is deductible), and incorporating the assumption that the entire state tax number is non-deductible. I don't know what deductions they give you in DC.

I'll be surprised if anyone takes the cap off FICA, but, then, so would you.

Wonk, can you run the numbers for him?

Re: Eat The Rich
 

Actually, he wrote (maybe he says something different elsewhere?): "I'm estimating a marginal tax rate without additional social security taxes of around 52%, 64%, including the employer share, if new social security taxes added". So you're challenging it as "bad math" based on a bad reading.

As I noted, I think it's a boogeyman. Also, I think it's a necessary step toward means-testing, which I think is a necessary element of any "fix". Same with Medicare.

Re: Eat The Rich
 

OK, bad reading, but I still don't get to 64%. (FYI, and a small point - if you're adding employer's share to an employee's rate, you have to add the amount to the gross - e.g., if you have a $100 of income and your employer pays $7.65 in social security, you calculate the added tax burden as 7.65/107.65 - the $7.65 doesn't come out of the $100, since it is paid for you - you assumed self-employed, he didn't).

I'm still interested in talking to Les about the benefits of time shares.

Re: Eat The Rich
 

I don't think it's unrealistic to expect FICA to be uncapped, or at least have the cap significantly increased. It will happen around the time that people realize that the way to eliminate a $1.75T deficit though a significant increase in taxes, and that income isn't going to do it, but instead a national sales tax is needed. At that point, increasing the FICA cap will look attractive by comparison, at least as a compromise, because enough people realize that getting the sales tax camel's nose under the tent is even more dangerous.

(oh, and you can't really count employer share of FICA in this, as GGG points out, even though, yes, it's a tax burden on the employee).

Re: Eat The Rich
 

What's the phaseout rate for deductions? In DC, you're already at 56% (40+10+6).

Re: We will never agree on this and therefore it is pointless to talk about!
 

I was joking, not really suggesting the money is inconsequential.

Hell, it's a bottle of Woodford Reserve. That's quite consequential.

Re: Eat The Rich
 

Where do you get 10% for DC? I looked at the 2008 return form, and it sez 8.5% of amounts over $40k. Did I miss a surtax?

I noted "self-employed"; I was fixing the argument for Bernstein (who was using sloppy math--I was working a tangent). There are a non-neglible number of "self-employed" people in DC, aren't there? And it is oft repeated that small business owners make up "half" of those earning $250k+, so they don't have to add it to their denominator, do they?

Re: We will never agree on this and therefore it is pointless to talk about!
 

I had to wear a suit today and play one in court.

Bless you, Ativan.

Re: Eat The Rich
 

Silly. It's because we're all brainwashed.

Re: Eat The Rich
 

In CA, the same 39.6, plus 10.3% state tax edit [yes, it is deductible, but does that decuction phase out too?], minus decreasing deductions, can easily hit his 52% marginal rate.

I don't know how likely it is that FICA will rise. I do know that I would rather have an extra 200 hours in my year than work those hours to get an additional $25,000 on my bonus if that would net to $8,000, or $40 an hour for those marginal weekend and late-night hours.

Thus, the potential for such a marginal rate is alarming because I think it will actually disincentivize hard work and entrepenurial enterprise. I don't care about lawyers because we are a friction cost and reducing our ranks is arguably cost-beneficial for the economy. I am talking about people that actually do something wealth-accretive.

$250,000 per year for a couple in SF or NYC is not that hard to achieve. Hell, our bus drivers, policemen, and firemen can make $100K a year with OT.

I know taxes have to go up because of the shopping-spree that GWB went on. My problem is that Obama's solution is to do even more shopping.

Re: Eat The Rich
 

For '08 and '09, it appears to be 1% of AGI over $159,950. The threshold will be $166,800 for '09. In 2010, there is no phaseout.

Presumably, this too sunsets and in 2011, it will be 3% of amounts over a (presumably) inflation-adjusted amount comparable to $166,800. So, it's about a 105 bip marginal rate increase in the (returning) 35% bracket and a 118.8 bip increase in the (returning) 39.6% bracket (both ignoring the personal exemption phaseout).

Re: Eat The Rich
 

Is there some kind of a surtax in DC? Because Cletus had an 8.5% rate, and I see an 8.5%, but keep hearing 10%. After the federal deduction at the proposed new maximum rate of 39.6, I think the math should be .396 + .051 + .0765, getting my calculation to about 52% with the cap taken off.

It's complex, but figure you lose about 1% on a marginal basis in phased out deductions and you stand to lose a few hundred dollars in tax benefit for each personal exemption (I haven't worried about how fast you lose it, make enough and you lose it). The phaseouts have been much reduced and don't matter as much any more - AMT is the bigger issue for taxpayers in the bulge.

Re: Eat The Rich
 

Or the nurses who make $100k+ of just OT pay.

Re: Eat The Rich
 

The phaseout is coming back in 2011 and matters w/r/t state & local taxes, as they are not exempted from the phaseout, making the precise estimate much more complex. But, as Wonk noted, for it to be a big deal, you need AGI north of $500k, so shut up and pay your taxes.

Re: Eat The Rich
 

Public sector OT is a bad example for the point you're making. At least in California, an agency's revenues are set by factors beyond its practical control, such as Prop 13 and net assessed value. So now the agency's only decision is whether to spread its revenue amongst 80 employees or 100. Elected officials prefer 100 (there are, of course, exceptions, but incentives being what they are . . . ) while midlevel managers and senior union members (who tend to be on the collective bargaining team) want the wealth concentrated amongst a smaller number -- 80.

All of this is to say that if the 80 current employees lose incentive to work OT because their net is less thanks to high marginal rates, the total productivity of the agency is the same -- it's just spread more thinly across a larger group, all of whose members stay lower than the income threshold for high marginal rates.

This only breaks down if you think it's better for the economy for two senior bus drivers to work OT than it is to have three drivers covering the same shifts. One trickle-down theory would say a household earning $120K is more beneficial than two of them earning $60K because they have more discretionary income. In my experience, public employees with high levels of OT income spend it on three things: second homes in blue collar vacation destinations, powerboats, and vintage Mustangs. Measure that stimulus against keeping a family in $60K of clover -- working for a living, not government cheese -- and a policy that discourages the taking of OT shifts isn't so bad after all.

I think the above analysis applies to many private sector union shift-based jobs. I'll leave it to smarter people than I to talk about the disincentives as applied to white collar salarymen and entrepreneurs, but it seems to me these people work equally on a principal of career-minded delayed gratification rather than the marginal dollar. No one wants to earn $275K; if you're in that game you're in it to win it.

Re: Eat The Rich
 

People who do something wealth-accretive don't count marginal hours/dollars in the same way that you do. You might decide that you'd rather have 5 extra hours this week to play, because you'll take fewer dollars home. The next Steve Jobs is going to bust his ass those extra 5 hours, not because of the marginal dollars he's going to take home today but because he wants to build his company.

Yeah, there's space in between, and yeah, there's a point where some people will actually decide not to put in some extra hours. But the entrepreneurs who are creating the kind of wealth and activity we need aren't deciding whether to work or not based on marginal tax rates of 50% versus 60%, or whatever.

Re: Eat The Rich
 

Very few of the people we are talking about (including many lawyers) have so clear a relationship between extra hours and extra dollars, and don't necessarily have a choice on the hours side.

Of course, I get zero margin return for an additional hour, so maybe I should stop working all together.

Re: Eat The Rich
 

Yes, in the form of reduced voting rights.

Re: We will never agree on this and therefore it is pointless to talk about!
 

motherfuck wonk, you make it tough to be your ally.

yes, I said "every week he complained". Plus, for most workers they have no choice in whether and how much OT they work. Am I the only one here that was every actually working class? Rhetorical- I know I am.

Re: Jindal's Street Under a Different Administration
 

it would put the volcanic lava out.

Re: Eat The Rich
 

just FYI- that happens and I'm laying off little people.