Jonathan Chait chides an “idiot reporter” from ABC News for reporting that “wealthy idiots” seem to think they can avoid a tax penalty by getting their income under $250,000. Chait writes:
Now, the obvious objection here is that the tax code doesn’t work that way. A tax increase affects the marginal dollar that a person gains. That’s means only every dollar over $250,000 is taxed at a higher rate. Obama is not proposing a tax system whereby somebody who goes from $249,999 to $250,000 suddenly becomes poorer. Nobody has ever enacted a tax hike like that in the history of the United States.
True. But these taxpayers have other reasons to be worried. Obama has proposed increasing the tax rate on capital gains and dividends from 15 to 20 percent for those taxpayers earning over $250,000 (married) and $200,000 (single). If that’s implemented without any kind of phase-in, then going from $249,999 to $250,000 incurs a pretty big tax penalty, right?
Maybe I’m wrong about this (if I am, I’m sure Chait will let me know). But even if Obama’s cap gains and dividend provisions are structured so that taxpayers in the top bracket avoid any net loss, a friend sends along this thought:
Are any of these folks [in the ABC News story] asserting that making the extra dollar pre-tax will put them behind post-tax? They could be saying that making that extra dollar just isn’t worth it given how much is being taken.
In fact, it looks an awful lot like that’s what they are saying:
“The motivation for a lot of people like me — dentists, entrepreneurs, lawyers — is that the more you work the more money you make,” said [Dr. Sharon] Poczatek. “But if I’m going to be working just to give it back to the government — it’s de-motivating and demoralizing.”