Megan McArdle on the public discussion about tax rates:
I also note, just as an aside, that the definition of “very rich” seems increasingly to be set at “just above the level a top-notch journalist in a two-earner couple could be expected to pull down”.
Funny how that happens.
Politics is a game with lots of rich people. Journalism is a game with lots of comparatively rich people. People in those professions know many other rich people. As you’d expect, the definition of “rich” has a tendency to shift in those circumstances: Most people tend to understand the word “rich” as “has a lot of money compared to everyone you know” rather than “has a lot of money compared to the median American.” This was on particular display during the campaign, when ABC’s Charlie Gibson called $200,000 middle class and John McCain defined “rich” as a yearly income of $5,000,000. In response, I made this graph, showing where the various definitions fell amidst the actual income distribution.
Megan also quotes David Leonhardt arguing that “today’s tax code makes no distinction between income above $373,000 and income above, say, $5 million. Both are taxed at 35 percent.” She argues that Leonhardt doesn’t go far enough. “I don’t see why we have tax brackets,” she says. “They’re inefficient, and a lot of them have pernicious marginal effects on those near the ceiling. Why not a continuously scaling function from negative (EITC) to some maximum? These days, people use either printed tax tables or tax software to prepare their taxes; this shouldn’t present an undue hardship.”
The tax rates, she continues, might engender controversy, “but the basic concept seems bipartisan.” I agree.
