[CWuestefeld]

Mr. Scalzi is a fine writer, but may not be a great reader. He completely overlooks the point of the article to which he referred.

To be sure, some of the criticisms he makes may be true. But to focus entirely on them, rather than the main point of the original article, is doing a disservice to those who really are more concerned with this issue than with financial envy.

So for the record, having followed the links to the original post, let me reiterate the intent. The "little guy" will be affected if the "rich" need to cut back. Luxury expenses (yes this is the point: it's a luxury to have a gardener or housekeeper) will be cut back, so anyone whose income relies on those expenditures will be hurt. In many cases, such as the immigrant gardener, forcing the rich to cut back causes a much more serious change to "downstream" incomes.

Of course, the number of rich people who really will react by cutting back, and the number of gardeners and the like who are affected by those cuts, is a matter of some debate. It may well be that in the balance, the harm is less severe.

But Mr. Scalzi doesn't even acknowledge that there is any debate. In this way, he's playing chicken with the rich, but the stakes will be paid by those who may be affected profoundly.

[kscaldef]

I would say, after reading the original post, that even this is unclear. Note that he says "Our combined income exceeds the $250,000 threshold for the super rich (but not by that much)" and also "At the end of all this, we have less than a few hundred dollars per month of discretionary income". I get the familiar feeling that Todd Henderson does not actually understand the concept of marginal tax rates. It seems like he's got enough buffer in his budget to handle a couple extra percent on the "not that much" he makes over $250k.

[gnaritas]

I've found most people don't understand marginal tax rates. Many seem to think that jumping up into the next tax bracket by even one dollar will make them make less money than they made in the lower bracket on less pay.

I was stunned one day when I heard my boss, a small business owner, say something to this effect over lunch, as well as another co-worker. I told them they didn't know what they were talking about and that's not how taxes work and he cited his years running a business as a reference and claimed I was naive and clearly wrong.

I bet him he was wrong and he took me up on it; after lunch I took him to our accountant and had him explain it, then pointed him at Wikipedia. Amazing that one can be an entrepreneur for 15 years and not know this.

Part of the problem is how we talk about taxes, we say things like tax cut for people making less than 50k rather than the more correct tax cut for the first 50k of your income. The former seems to be talking about someone else while the latter clearly means you too, while avoiding the us vs them mentality that seems to turn off most people's brains. I've made it a point to make sure everyone I know understands marginal taxes now.

[jacobolus]

It seems to me (as a biased observer) that a big part of the language/understanding deficiency here has just been that the GOP and its very effective messaging apparatus deliberately uses language that increases that confusion, and the Democratic Party is incompetently happy to adopt the same language, despite the clear harm to their platform.

[CWuestefeld]

You may be right, but it's also not as simple as you make it sound. There are a number of discontinuities in the bottom line rates that can make a much larger difference than an increase in one's highest marginal bracket. Especially around the income that the Henderson refers to, when you're likely to be hitting the AMT, it's definitely not a smooth function.

For myself, a year and a half ago, this happened. There was a conjunction of several changes (particularly hitting AMT, and a significant decline in mortgage interest deduction, and a good chunk of additional one-time "unearned" income) that together made it appear that the marginal rate on the income (relative to the previous year) was on the order of 60+%.

FWIW, I know that it's a (hideously) complex calculation with many, many factors, and what I was looking at thus wasn't actually the marginal rate as such. Nevertheless, what I experienced was, financially, the equivalent of that.

Your point portrays this as simple by assuming that the income tax is represented by a simple set of tables, but it's much more byzantine than that. All this added complexity can sometimes make your best-case scenario turn much worse.

[kscaldef]

It's true, there can be a lot of complexity. Maybe Mr. Henderson ought to take some of his extra few hundred dollars a month and meet with an accountant so he has a better idea of how he could be affected.

[sethg]

I refer you to Brad DeLong (an economics professor who used to work in the Clinton Administration):

Back in 2000, the U.S. government's long-term budget was out of balance--although not by all that much. The government had, you see, made promises--very popular promises--for Medicare, Medicaid, and Social Security without proposing sufficient funding streams to pay for those promises.... So back in 2000,... we elected George W. Bush. Two wars.... A huge unfunded expansion of Medicare.... However, instead of raising taxes George W. Bush reduced them. This simply does not work. As Milton Friedman liked to say, to spend is to tax.... Taxes are going up over the next decade--barring cuts of 1/3 to Medicare, etc. They can either go up smartly or we can pretend they don't have to go up, in which case they go up stupidly. (http://delong.typepad.com/sdj/2010/09/in-which-mr-deling-res...)

Professor H., the author of the original complaint, does not want his taxes to go up at all. But if his taxes don’t go up, whose will? His gardener’s?

[CWuestefeld]

You're mostly right, and in my opinion the government needs to cut its spending very significantly.

However, you're confusing tax rates with tax revenue. It's quite possible that increasing the rate can lead to a net decrease in total tax revenue. And in some cases, lowering the rate can lead to an increase in revenue. This is known as the Laffer curve. See https://secure.wikimedia.org/wikipedia/en/wiki/Laffer_curve

While this concept is the subject of some controversy, it's demonstrably true at the extreme. Raising the rate to near 100% will clearly decrease revenue. But on the other hand, decreasing it to 0% will also decrease revenue. But with more moderate values, it's really anyone's guess as to whether it will hold or not.

It's the same in business, really. One's revenue can increase by decreasing prices: more people will buy your product, and that may be enough to offset the per-unit loss.

What's really controversial is the question over how much people will forgo additional income due to changes in marginal tax rate. There are certainly boundary conditions, such as when the amount you finally take home after taxes is less than your cost for child care. More fuzzy is when the amount you take home is less than your value for free time.

[Locke1689]

The Laffer curve isn't really relevant here. Pretty much every economist in the country agrees that we're left of the max on the curve.

[msluyter]

But with more moderate values, it's really anyone's guess as to whether it will hold or not.

I recently read a discussion about this in the NY Times in which economists tried to pinpoint the inflection point of the Laffer curve. Most put it between 30-60%, and iirc, the majority were on the 60% side of things. I can't find that discussion now, however.