William McGurn has written an excellent piece on President Obama’s pledge not to raise taxes on households earning less than $250,000. You should read it if you haven’t already.

Andrew Ross Sorkin dove deep into the origins of the $250,000 threshold:

The dividing line appears to have its genesis in 1993, when President Bill Clinton created a new tax bracket at $250,000 and raised the rate to 39.6 percent. Prior to Mr. Clinton’s new bracket, the highest earners were those defined by making more than $86,500; they paid 31 percent under the first President George Bush.
Mr. Obama started using the $250,000 household income level to define wealthy Americans during his campaign in 2008. Under his budget proposal, a target of the Republicans in recent weeks as part of a fierce battle over raising the debt ceiling, the tax cuts enacted by his predecessor, President George W. Bush, would be reversed for those households. Mr. Obama’s proposed top household income tax bracket — starting at $250,000 — would pay 39.6 percent on federal income. (Single filers making $200,00 or more would also be in the highest bracket.) Currently, the highest tax bracket starts at$379,150, and they pay 35 percent.
Aides that worked with Mr. Obama during his campaign said he latched onto $250,000 because it helped invoke President Clinton’s era of economic prosperity in the 1990s — a demonstration, the argument goes, that higher taxes did not hinder growth.

Over the intervening period, as Sorkin notes, that value of $250,000 eroded:

If Mr. Obama were really trying to return to Mr. Clinton’s 1993 levels, he would have to adjust the bracket for inflation, moving it up to about $386,075. In fact, in Mr. Clinton’s last year in office, the top bracket had risen to $288,350 from $250,000.
Then there is the problem of keeping up with the Joneses. In 1993, earning $250,000 was a more exclusive club, making it easier to feel like one of the wealthy. Back then, households making more than $200,000 represented about .08 percent of the country.

I was very encouraged to read that the Obama administration is not indifferent to incentive effects:

Tax brackets could be added for the wealthiest — for instance, a millionaire’s tax. In 2009, the House of Representatives included 5.4 percent surtax on millionaires as part its health bill, but the tax later morphed into the Medicare payroll tax on households making more than $250,000.
Peter R. Orszag, the former director of the Office of Management and Budget under President Obama, said a millionaire’s tax “is an idea that has been discussed in Democratic policy circles,” but that ultimately it was outweighed by “economic concerns that marginal tax rates could creep over the 60 percent range” in certain cities in the country, when factoring in state and local taxes.
There is also a question about whether enough money could be collected from those “millionaires and billionaires” to make up for lost revenue from households making mid-six figures. [Emphasis added]

It is worth noting, however, that the extension of the 2001 and 2003 tax cuts prevented MTRs from crossing this line. Alan Viard described the implications of the president’s original proposal:

In 2010, the top income tax rate bracket for ordinary income is 35 percent. Besides wages and interest income, this income category includes profits from pass-through business firms—sole proprietorships, partnerships, and S-corporations. Under the president’s proposal, the top bracket will rise to 39.6 percent. A stealth provision that phases out high-income taxpayers’ itemized deductions will also be reinstated, adding another 1.2 percentage points to the effective tax rate, bringing it to 40.8 percent. Wages and some of the pass-through income will also remain subject to a 2.9 percent Medicare tax. These 40.8 and 43.7 percent tax rates, which will apply in 2011 and 2012, match the 1994 to 2000 rates—the same top bracket, stealth provision, and Medicare tax were in place then.
But the picture changes in 2013. Under the healthcare law adopted in March, the Medicare tax will rise that year, from 2.9 to 3.8 percent. Also, a new 3.8 percent tax, called the Unearned Income Medicare Contribution (UIMC), will be imposed on high-income taxpayers’ interest income and most of their pass-through business income that’s not subject to Medicare tax. So, under the president’s proposal, virtually all of top earners’ ordinary income will be taxed at 44.6 percent, starting in 2013. We’re not just going back to the Clinton-era rates of 40.8 and 43.7 percent.

The two-year extension means that the picture won’t change in 2013. But the Obama administration has suggested that it would be content to see the high-income rate reductions expire. Once we layer state and local taxes on top of 44.6 percent, it’s easy to see how the 50 percent mark gets breached. It’s possible that we shouldn’t fret about doing so. But Peter Orszag tells us otherwise, and I am inclined to agree.