Apropos my earlier post about walking back the madness that currently inhabits the budget debate, here's Daniel Gross making sense:
Finally, there has been a near total absence of discussion of what higher rates will mean in the real world. Say you're a CNBC anchor, or a Washington Post columnist with a seat at the Council on Foreign Relations, or a dentist, and you managed to cobble together $350,000 a year in income. You're doing quite well. If you subtract deductions for state and property taxes, mortgage interest and charitable deductions, and other deductions, the amount on which tax rates are calculated might total $300,000. What would happen if the marginal rate on the portion of your income above $250,000 were to rise from 33 percent to 36 percent? Under the old regime, you'd pay $16,500 in federal taxes on that amount. Under the new one, you'd pay $18,000. The difference is $1,500 per year, or $4.10 per day. Obviously, the numbers rise as you make more. But is $4.10 a day bleeding the rich, a war on the wealthy, a killer of innovation and enterprise? That dentist eager to slash her income from $320,000 to $250,000 would avoid the pain of paying an extra $2,100 in federal taxes. But she'd also deprive herself of an additional $70,000 in income!
This speaks to the concerns of many upper-middle-class people who are concerned about losing a lot of money under the administration's new tax plans. No one likes to see their taxes go up (even liberals!) but the relatively small increase, combined with the importance of the programs the money will fund, make a very reasonable argument for the president's budget plan.
In the same spirit of facing reality, we can relieve the many conservatives arguing that they are not concerned about raising taxes on the wealthy, but instead worried about small business owners who claim their income as self-employed individuals and might come to be affected by these provisions. We wouldn't want to hurt small business in a time of recession, right? (No mention that these tax increases are set to occur in 2011, when, God willing, we'll be coming out of the recession.)
But of course that small business income is taxed after business costs have been deducted. Thus, as the Center for Budget and Policy Priorities points out, "only 8.9 percent of people with any small business income have incomes of over $250,000 and, thus, would even potentially be affected by these provisions." In fact, only 1.9 percent of small business owners are in a tax bracket that would be affected by the president's changes, which, as noted above, are relatively small. Further, if the health care reform is a success, one the biggest problems faced by small business -- financing health benefits for employees -- will be significantly eased. At the end of the day, it's simply inaccurate to suggest that the tax increases on the table hurt small business. That's some real talk.
-- Tim Fernholz
