It isn't common knowledge just how much wealthy people already pay, and how much tax is wasted by increasing spending on everything. Ironically, raising taxes on anyone will lower the production of the US, and so will lower the number of jobs.

There are two myths that make people eager to raise taxes, if it doesn't affect them personally.
(1) Taxes are a nice transfer. $1 from him means $1 for me or my friends.
(2) Government spending stimulates jobs. Good for the economy.

See: http://ideas.repec.org/a/tpr/restat/v81y1999i4p674-680.html
Tax Avoidance And The Deadweight Loss Of The Income Tax
2000 by Martin S. Feldstein, the George F. Baker Professor of Economics at Harvard University and former President of the US National Bureau of Economic Research.

[edited] "Traditional analyses of the income tax greatly underestimate deadweight losses by ignoring its effect on compensation and consumption [jobs]. The full deadweight loss is easily calculated. Estimates imply a deadweight loss of as much as 30% of revenue. The deadweight loss caused by increasing tax rates may exceed $2 per $1 of revenue increase."

I will restate this. Government activities and transfer payments had better be useful to the society, because economic output has already been lowered by 30% of the taxes currently collected. Output will be further lowered by $2 for each $1 of any additional taxes collected. This means that $2 worth of production (jobs) will be destroyed for every additional $1 collected through increased taxes.

This is a severe loss, because there is no "stimulus" that goes beyond that "extra" $1 in government spending, which would have been invested or spent anyway. There is only moving goods around from some people to other people, at great expense. To transfer $1 to a needy voter, the government will take $1 from a rich person AND eliminate $2 in production of goods and services, also called jobs.

I suggest at "The Myth of the Economic Multiplier", why the common belief in an economic stimulus from spending feels right, but is wrong anyway.
Government spending is a banquet, not a stimulus.

See http://easyopinions.blogspot.com/2008/08/econ-201-myth-of-economic-multiplier.html

Also see my parable "Public Tax Meeting" at: Public Tax Meeting

Excerpt:

John JJ Richman was making breakfast when he heard the crowd outside. They seemed just shy of hostile. He opened his door to see about 65 townspeople, out of a town of 100. Two spokesmen were standing on the porch.

John: Good morning. Why are you all here?
Rob: There are things that need changing, and you are the one to help us.

John: (Distracted by the milling crowd)
Rob: The town could use improvement. Renovating the school, hiring more police, fixing up the football field, and a summer splash fountain for the children. For the little children! (Rob was shaking a bit.)

(continued)

Posted by: Andrew Garland at October 3, 2008 1:33 PM

I don't think the Tax Policy Center backs you up. If you read the rest of the report you lin, there is no cite of a single tax increase that would apply to folks under $250,000.

The only reason that the entries in the column at the far-right are not all zeros except for the "top quintile" entry is because the Tax Policy Center's methodology distributes corporate tax changes to individual households based on their share of capital income (interest, dividends, capital gains, and rents). So that column really just shows the percentage of tax units that receive any capital income.

No families earning less than $250,000 will pay a penny more in federal taxes that they are personally liable to pay. While you can debate where the incidence of corporate taxes lands (lower after-tax corporate profits may lead to lower CEO pay, lower hourly wages, or higher consumer prices) and how higher taxes on the wealthy affect middle income folks (taxes on yachts might reduce the number of jobs for shipbuilders, no middle-income taxpayers will owe more taxes under the Obama plan.

If you disagree, cite the specific proposal - not an artifact of the Tax Policy's microsimulation.

Posted by: Joe at October 3, 2008 3:06 PM

All good points but there's one more.

Barak's health plan mandates coverage for "children" (knowing the Dems it will probably include 30-year-old children seeking their PhDs).

Mandatory heath insurance premiums are scored as taxes by the Congressional Budget Office so depending on the plan details these will be tax increases as well.

Posted by: Duncan Frissell at October 3, 2008 4:47 PM

Doesn't Comrade Obama want to eliminate the cap on Social Security taxes (as has already been done with Medicare taxes)?

I've got news for the Comrade's Kool-Aid Constituency - that's a major increase in federal taxes on those making under 250k.

Posted by: Tom W at October 3, 2008 5:32 PM

Joe,

The other Joe, Biden that is, was very clear in the statement he made...

No one making less than $250,000 under Barack Obama's plan will see one single penny of their tax raised, whether it's their capital gains tax, their income tax, investment tax, any tax.

If Obama/Biden want to revise their position to something along the lines of "nobody making under $250,000 in non-investment/non-capital gains income will see taxes on that portion of their income rise", then I think you've got a point, but that's not what Biden said last night, and not what Obama has been suggesting.

If you don't qualify for enough of the new credits and deductions, and your income is coming from certain sources, the Tax Policy Institute says Obama's proposals may your taxes go up, regardless of how much you make.

Posted by: Andrew at October 3, 2008 5:44 PM

Tom,

Currently Obama favors a "donut-hole" approach -- no social security tax on incomes between the current ceiling ($102,000, I think) and $250,000.

Posted by: Andrew at October 3, 2008 5:47 PM

>>Currently Obama favors a "donut-hole" approach -- no social security tax on incomes between the current ceiling ($102,000, I think) and $250,000.

Which will go out the window in approximately the same time frame as Bill Clinton's middle class tax cut, i.e., about 30 days into his first administration.

Posted by: Tom W at October 3, 2008 9:10 PM

Tom W
Incredible. You have no connection to the administration of the federal government, are not privy to Obama's inner circle, and you know that the promised social security tax plan will be shelved within 30 days of his administration. Amazing!
OldTimeLefty

Posted by: OldTimeLefty at October 4, 2008 2:13 AM

OTL,

I'm relying on the precedent set by the last Democrat President, who was running as a fiscal moderate "centrist" Democrat.

You're right. Obama is far left of Clinton, and is running on massively expanding government.

So I guess it would have been more accurate for me to have said that the Social Security "donut-hole" will be gone within the first 30 seconds of his administration, not 30 days.

Posted by: Tom W at October 4, 2008 2:15 PM

Duncan,
You're almost correct. Obama's plan calls for dependent health coverage up to age 25.

I don't know what it says about our society that 25 year olds are considered to be dependent children whose healthcare needs to be subsidized by the rest of us paying insurance premiums.

Some members of the WWII generation had already fought in a war, graduated collecge and started a job by that age, but now 25 year old are "dependents".

Posted by: Anthony at October 5, 2008 2:48 PM

Obama says "families" making 250k or more? We are confused! Together we make more than 250, should we divorce and get taxed less because we have been successful and feel punished?? Also, as a business owner, if this is true, I will pay my employees less to ensure I take home the same pay. I'm disgusted with this man!

Posted by: Tom at October 6, 2008 12:18 AM