ABC News reports on "upper-income taxpayers" who are trying to reduce their income so they avoid proposed tax increases on those earning more than $250,000.
According to ABC, one attorney "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." According to the attorney: "We are going to try to figure out how to make our income $249,999.00." ABC also quotes a dentist who is trying to figure out how to reduce her income.
This is stunningly wrong.
The ABC article is based on the premise that an individual's entire income is taxed at the same rate. If that were the case, it would be possible for a family earning $249,999 to have a higher after-tax income than a family earning $255,000, because the family earning $249,999 would pay a lower tax rate.
But that isn't actually how income tax works.
In reality, a family earning $255,000 will pay the higher tax rate only on its last $5,001 in income; the first $249,999 will continue to be taxed at the old rate. So intentionally lowering your income from $255,000 to $249,999 is counter-productive; it will result in a lower after-tax income.
The people ABC quoted don't seem to understand that. Worse, ABC doesn't seem to understand it, either.
UPDATE: Another thing: the last third of the ABC article is devoted to the question -- posed in large, bold text -- "Does Obama Tax Plan Promote Class Warfare?" I addressed the media's absurd and one-sided use of the loaded term "class warfare" in my column last week.
UPDATE 2: ABC acknowledges flaws, re-writes article.
From ABC News:
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.
Dr. Sharon Poczatek, who runs her own dental practice in Boulder, Colo., said that she too is trying to figure out ways to get out of paying the taxes proposed in Obama's plan.
"I've put thought into how to get under $250,000," said Poczatek. "It would mean working fewer days which means having fewer employees, seeing fewer patients and taking time off."
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Amid reports that MSNBC's Larry Kudlow is considering a run against Connecticut Senator Chris Dodd, Media Matters for America decided to check out what Kudlow has said about Dodd in the past. We came across this column from 2007, which is interesting for a couple of reasons: Describing a hearing in which Fed Chairman Ben Bernanke testified about the then-strong economy, Kudlow accuses Dodd of "harping about income inequality and wage stagnation, trying to change the subject from the excellent economic news and pave the way for a tax hike on the top, most successful American earners."
So, Fed Chairman Ben Bernanke, testifying before Congress, officially threw in with Goldilocks - moderate growth, declining inflation.
The stock market loved it, up 100 points. Stocks soared in all sectors and around the world.
Strong business, rising exports to the rest of the world, healthy consumers, low unemployment, wages on their best run in years - these were Bernanke's key bullet points.
Senate Democrats like Christopher Dodd and Chuck Schumer kept harping about income inequality and wage stagnation, trying to change the subject from the excellent economic news and pave the way for a tax hike on the top, most successful American earners. But wages are booming. And the rest of the inequality story is so much statistical illusion and faux arithmetic. (Just ask Washington economics scholar Alan Reynolds).
USA Today uncritically reported Rep. Tom Price's false claim that President Obama's tax proposal would "eliminat[e] tax deductions for upper-income Americans." In fact, rather than "eliminating" itemized tax deductions, the proposal would limit to 28 percent the tax rate at which families earning more than $250,000 can take itemized deductions.
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Responsible journalists use that loaded phrase with care. But we're talking about Politico, so today we get this ugly effort by Jeanne Cummings:
"Class warfare returns to Washington"
Wow, Obama, not known for his angry rhetoric--in fact, he's know for the opposite--has brought class warfare back to the Beltway? Here's how Politico defends using the nasty phrase:
And right on cue, Obama defended his $1.3 trillion in tax hikes over 10 years with a little class warfare.
"I know that this will not always sit well with the special interests and their lobbyists here in Washington, who think our budget and tax system is just fine as it is. No wonder — it works for them," the president said. "I work for the American people, and I'm determined to bring the change that the people voted for last November."
You can read that passage twice or three times or ten times and you're not going to find any "class warfare." (Obama very gently tweaked "special interests and their lobbyists." That aint class warfare folks.) My hunch is Cummings and her editors knew that but didn't really care because they were wed to the phrase and they were wed to the misleading headline, which has become a sad hallmark at Politico.
ABC News' Jake Tapper, CNN's Dana Bash, and Fox News' Sean Hannity advanced the falsehood that President Obama's plan to allow the Bush tax cuts to expire for wealthy taxpayers would cause a large percentage of small businesses to pay higher taxes. In fact, according to the Tax Policy Center, just 2 percent of tax returns that reported small business income in 2007 are in the top two income tax brackets, which include all filers with taxable incomes that would be affected.
On MSNBC's Hardball, Chris Matthews did not challenge former Gov. Robert Ehrlich's false suggestion that President Obama's proposal to let the Bush tax cuts for wealthy taxpayers expire would increase taxes on a large percentage of small businesses. In fact, Obama has proposed raising marginal income tax rates and reducing income tax deductions for individuals earning more than $200,000 per year and for couples earning more than $250,000 per year, and according to the Tax Policy Center, just 2 percent of tax returns that reported small business income in 2007 are in the top two income tax brackets, which include all filers with taxable incomes that would be affected.
In claiming that "small businesses ... are putting $250,000 in revenue out there, and they're going to get impacted" under President Obama's proposal to let the Bush tax cuts on wealthy taxpayers expire, CNBC's Maria Bartiromo falsely suggested that Obama has proposed taxing small business revenue. In fact, Obama has proposed raising marginal income tax rates and reducing income tax deductions for individuals earning more than $200,000 per year and for couples earning more than $250,000 per year.
The Washington Post and The New York Times uncritically reported Rep. John Boehner's debunked suggestion that increasing taxes on those making more than $250,000 would cause a large percentage of small businesses to pay higher taxes. In fact, according to the Tax Policy Center, a mere 2 percent of tax returns that reported small business income in 2007 are in the top two income tax brackets, which include all filers with taxable incomes of more than $250,000.
Fox News' Neil Cavuto stated that President Obama "misstate[d]" the facts on the U.S. corporate tax rate structure, and purporting to "correct" him, claimed that the U.S. corporate tax rate is "at a high 35 percent ... the highest in the industrialized world. That is un-debatable and unequivocal." In fact, while the U.S. statutory corporate tax rate is 35 percent, according to the Government Accountability Office, "Statutory tax rates do not provide a complete measure of the burden that a tax system imposes on business income." Additionally, World Bank and GAO data indicate that the U.S. effective corporate tax rate is lower than 35 percent and lower than several developed economies.
Rush Limbaugh falsely claimed that taxes would increase on "most small businesses" if the Bush tax cuts on Americans making more than $250,000 expire in 2011. In fact, the Tax Policy Center stated that in 2007, about 2 percent of tax returns that reported small-business income are in the top two income tax brackets, which include all filers with taxable incomes of more than $250,000.
On Morning Joe, Pat Buchanan stated that under President Obama's plan, "we're looking at permanent tax increases," while Joe Scarborough said that the White House suggested it will propose "an increase of taxes." But neither Scarborough nor Buchanan noted, as Peter Orszag said during a later segment, that Obama proposes letting the Bush tax cuts expire only "for those who are earning more than ... a quarter of a million dollars a year."
CNN's John King allowed Sen. Mitch McConnell to revive the debunked claim that letting the Bush tax cuts expire for Americans making more than $250,000 would affect a large percentage of small businesses. In fact, according to the Tax Policy Center, 481,000 small businesses -- about 2 percent -- fall in the top two income tax brackets that would be affected by those increases.
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