March 4, 2009

Worse Mistake

I talk politics with a lot of people, and when the conversation turns to taxes, the most worse mistake I run across is this one:

The premise of the report is this: Barack Obama plans to raise taxes on people who make more than $250,000, so the reporter has gone and found people who earn a little more than that sum who plan to decrease their income so that they come in underneath the magic line.

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.

A lot of people, smart, informed people I've talked to don't understand this. They think if they make less money, they will take home more money after taxes. They think the current tax code discourages you from earning money. Some even earn less money based on this mistake. I wonder how many people out there make believe this. We need a poll. My guess is that millions of dollars and thousands of potential Democratic votes are going to waste because people don't understand the basics of marginal tax rates.

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