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The Times Wages Class War

The New York Times story about the plight of families in the top 2% of the income distribution who don't "feel" rich seems to be based entirely on a misunderstanding about how the tax code works:

As the political battle drags on, however, [the tax cut debate] has also veered into a more basic matter of fairness, whether a person who earns more than $200,000 a year should be taxed at rates similar to those who make $5 million.
President Obama has proposed preserving the cuts for middle-class Americans and letting them expire for the top 2.5 percent of taxpayers — individuals who make more than $200,000 a year and families whose income exceeds $250,000.
But others in Congress have questioned why ending what Mr. Obama frequently calls “tax cuts for millionaires and billionaires” should also raise taxes on families making $250,000. With the Senate unlikely to vote on the matter until after the midterm elections, some Democrats are pushing for a compromise that would leave the cuts in place for those higher up the income scale.

The article delves into the question of just who counts as rich. I think it's a silly question. Rich is a relative question. It doesn't mean you can buy everything you want. If you're in the top 2% of the income distribution, then you are, relative to 98% of the population, rich. You are more able to bear the cost of higher taxes.

But put that aside. The main problem with the article is that it presupposes that individuals making $200,000, or couples earning $250,000, will pay higher taxes. They won't. The tax hike only applies to income over that threshold. When you go from $250,000 to $250,001, you only pay a higher tax rate on that one extra dollar. Your taxes will go up by a few cents. If you earn $300,000, you will pay a slightly higher tax rate on the last $50,000 of your income -- less than a couple thousand dollars.

Even people making half a million dollars a year won't be "taxed at rates similar to those who make $5 million," because only half their income will be taxes at the top rate.

It seems like the wntire tax debate has been conducted under a could of basic ignorance about how tax rates work. Newspapers have characterized the Democratic plan as consisting of tax cuts "for the middle class," when in fact their tax cut plan applies to all income under $200,000/$250,000 -- meaning that everybody up to and including Bill Gates would get a tax cut under their plan. Part of this is due to reporters not understanding basic facts about the tax code. But I also wonder if the unconscious class bias of the media is at work. While people who earn more than $250,000 are a tiny, tiny proportion of the population, their plight has commanded an inordinate share of attention among reporters, not to mention members of Congress.