More on Marginality: God Help Us

Sorry for the long time between posts, I had to go to the hospital to sew up the stitches in my jaw when it crashed to the floor as I read this, in Politico:

In a private lunch meeting with Senate Democrats, Treasury Secretary Timothy Geithner pitched the president’s plan for a one-year extension of the Bush-era tax cuts for families earning less than $250,000, saying it would give certainty to the middle class and plug a hole in the gaping budget deficit. And Geithner tried to assuage concerns by telling Democrats that the president’s plan would ensure that all taxpayers would pay the lower tax rates on their first $250,000 of income — and they would be hit with higher tax rates only for earned income over that threshold, attendees said.

Read that last sentence again to yourself. Tim Geithner had to explain to Democratic senators how marginal tax rates work? Shoot me.

Let's do this yet again. Marginal tax rates means that rates increase as the dollars earned go higher. Dollars earned. Obama wants to restore Clinton-era rates on dollars earned above $250,000. So if a person makes $270,000, she will pay the higher rate only on that last $20,000 of income. Capisce?

In fact, it's even better than that, because the "dollars" here refers to taxable income, not gross income. So a person who makes $270,000 and takes deductions (owns a home, takes other business-related deductions, etc.) won't even be hit by Obama's proposal at all, because undoubtedly if this person owns a home, the mortgage-interest deduction will get her below $250,000 in taxable income. So she won't be touched.

I'm no accountant, but just based on my own experience with my taxes, I'd guess that an individual or couple has to get to somewhere in the neighborhood of $320,000 in gross income to be left (assuming they're homeowners) with a taxable income much above $250,000. And $320,000 is really getting up there. The cutoff for the top 1 percent is around $385,000, so you're in pretty rarefied air.

And again, we are talking about a 4.6 percent increase on only those top dollars. So if you make $320,000 and have a taxable income of $270,000, you would pay under the Obama plan an extra 4.6 percent of $20,000, or an extra $920.

I pray that this really didn't have to be explained to sitting senators. It's not that complicated. And it's not that hard to explain to the American people. It really isn't. The people who are the target audience for this explanation, first of all, are well-off people with accountants who spend all year saving receipts. They understand the concepts of gross and taxable income, so telling them about the rest can't be that hard. "You'll pay an extra 4.6 percent on the taxable dollars you earn above $250,000." That's a very simple sentence!

And I was joking about the stitches.