Like Digby, I’m disgusted at the sympathy for the plight of those who make more than $200,000 per year–something I’ve discussed before–the NY Times’ Ron Lieber displays. But what’s ridiculous is Lieber’s failure to understand how the proposed tax deduction cap would work. But before I get to that, I want to briefly visit this:
The family includes a married, heterosexual couple earning $350,000 combined annually that received no raises from 2011 to 2013, lives in the suburbs of New York City and has two children. They pay $20,000 in real estate taxes each year and $24,000 in annual interest toward their mortgage, make a total of $30,000 in 401(k) contributions and give away $9,000 in charitable contributions in all three years.
First, this family gives less than three percent of its income to charitable causes. You fucking cheap bastards.
Now that I’ve gotten that out of my system, let’s move on to tax deductions–or what they should be more accurately called, tax expenditures. Yes, this is government spending. Suppose I deduct $10,000 from my taxes and I would have paid $2,800 on that $10,000 of income (that money would fall in the 28% bracket). When I file my taxes, I end up paying $2,800 less. This is no different than if I were to pay taxes on that $10,000, and then the government were to send me a check for $2,800 later. This is a hidden spending program, even if most people don’t recognize as such. It’s also regressive–people whose income is taxed at lower rates receive a smaller rebate than the wealthy who are taxed at a higher rate, even if they are engaged in exactly same activity at an identical cost. Let’s take the mortgage interest deduction, for instance.
If a household taxed at 33% deducts $10,000, it receives $3,300 back, while the household taxed at 15% only gets $1,500. While I think the mortgage interest deduction is stupid (it inflates housing prices, subsidizes owners at the expense of lower-income renters, and is a massive boondoggle provided to the realty and mortgage sectors), if you believe the U.S. government should be in the business of subsidizing home ownership, then the less well-to-do family should be receiving a larger subsidy–or at least, not a smaller one. Which brings me to Lieber’s confusion (boldface mine):
That number does not take into account the president’s proposed 28 percent deduction limit. Ms. Trimble said that there was a lot of debate in tax circles about precisely how it would work in practice.
But if the proposal simply means that you calculate taxable income for 2013 and then pay 28 percent of it, you get $69,633, or just $4,029 more than the family would have paid in 2011 and 2012. (Also, $900 of that increase in 2013 isn’t even attributable to the expiration of the Bush tax cuts or the 28 percent cap; it comes from the recent increase in taxes on higher-net-worth households to pay for Medicare, which goes into effect in 2013.)
With misinformation like this, no wonder we’re a nation of idiots (yet another adult education failure perpetrated by corporate media). This is not hard. The 28% limit, in every proposal I’ve seen, simply states that if you’re in a higher tax bracket (e.g., 33%), you can only deduct an amount equivalent to that if you were in the 28% bracket*. In the example above, the wealthy family would only be able to deduct $2,800, not $3,300. Of course, this doesn’t do a damn thing for the household taxed at 15%, but baby steps, I suppose.
Better economic reporting please. As a paying customer of your product, I deserve accurate information. And if you take being the ‘paper of record’ seriously, then you have a broader ethical obligation too.
But bloggers wear pajamas. Or something.
*It would be a somewhat difficult to implement on the current tax form.