Wednesday, March 4, 2009

Going John Galt

“Going John Galt” is the latest rage in Outer Wingnuttia, where alleged “upper two-percent income earners” vow to decrease their incomes below the Obama-mandated $250,000 out of financial necessity.

A typical example:
• I have a friend who is planning to not work overtime this year to stay well below the dangerous benchmark that is 250k. His point was that he might as well take some time off and enjoy and relax rather than work and give every dollar above 250 away. I don’t blame his reasoning and the loss is, he spends his money.

The argument is so compelling, it piqued the interest of a reporter at ABC News, who filed this report:

A 63-year-old attorney based in Lafayette, La., who asked not to be named, told 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.

"We are going to try to figure out how to make our income $249,999.00," she said.

"We have to find a way out where we can make just what we need to just under the line so we can benefit from Obama's tax plan," she added.

"Why kill yourself working if you're going to give it all away to people who aren't working as hard?"

Of course, the “little people” doing things like caring for your kids, cleaning your office, providing your nursing care, educating your children, etc. etc. don’t “work hard.” Oh, the arrogance, the sense of entitlement from these pockets of "real America." It's astounding!

There’s more:

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."

Poczatek argued that by reducing her income from her current $320,000 to under $250,000 by having her dental hygienist work fewer days and byl treating fewer patients, she would avoid paying higher taxes on the $70,000 that would be subject to increased taxation if Obama's proposal is signed into law.

These must be the dumbest bunch of wealthy Americans ever because “Going Galt” to stay below $250,000 in income is just wrong. Like, really, really wrong. As in, factually incorrect:

Now, the obvious here is that the tax code doesn't work that way. A tax increase effects 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.

So, Poczatek will still end up far better off paying a slightly higher tax on that $70,000 than if she didn’t earn the $70,000 at all. I mean, how dumb can you get?

There’s a lot of factually incorrect information swirling around out there about Obama’s tax plan. Yesterday morning a friend told me he has a wealthy client who said Obama was going to eliminate the deduction for charitable contributions. “Gee,” I replied. “If that were true, you’d think we’d have heard about that.”

Sure enough, it’s another piece of wingnut misinformation. The president’s tax plan does not eliminate charitable deductions, but caps them at 28% AGI for top-income earners. This levels the playing field for the 95% of us who are not named Frist or Gates who like to donate to charities, too:

If you’re a teacher making $50,000 a year and decide to donate $1,000 to the Red Cross or United Way, you enjoy a tax break of $150.  If you are Warren Buffet or Bill Gates and you make that same donation, you get a $350 deduction – more than twice the break as the teacher.
This proposal walks that difference back some of the way – it would limit the tax benefit for Buffet or Gates to $280.  In other words, we are not eliminating the deduction – just reducing it to 28 percent (or $280 on the hypothetical $1,000 contribution) for the 5 percent of families at the very top of the income distribution.  That is the same tax benefit that they would have enjoyed at the end of the Reagan Administration.

There’s a lot of ignorance out there about taxes and tax proposals, and that’s understandable -- taxes are a complicated issue. All the more reason why news outlets should be extra careful when doing their reporting.