Income tax policy is a good study to understand how politics works.

With the need to rebuild readership of Anchor Rising, the calculation of using Twitter unfortunately changed for me, and I’ve had to return to it to some extent.  The experience has been a useful reminder that the platform is not entirely without benefit.

For instance, during Biden’s speech the other night, Biden-sympathetic Brown University PoliSci Professor Wendy Schiller opined that pushing to raise taxes in the top bracket might present some risk for Democrats.  WJAR investigative reporter Katie Davis responded in a way that may have showed a bit too much ideology for a reporter:

It’s like an extra $2300/year on each $100k you make above $400k…I feel like if you’re at $500k salary (or more) you can swing it. WH should explain the math of it! …

People hear about the plan in passing & think taxes would be 39% of all $400k, rather than the marginal rate on income above $400k. Taxes = complicated and unpopular.

I confirmed with Davis that $2,300 was a typo, and the $400,000 was just an off-the-cuff dollar range while chatting on Twitter.  The proposal is actually to increase the top tax bracket from 37% to 39.6%, which would be $2,600 in Davis’s example.  Also, the top bracket currently starts around $520,000, not $400,000.

She and I had a good exchange, though, in a way that highlights how easily these numbers can be spun, and how significant the spinning can be.

She’s correct that people often think, incorrectly, that the full top tax rate applies to the whole income, such that somebody making $620,000 would pay 39.6% on it all.  That creates opportunity for people who oppose a tax increase to make it seem bigger than it is.

On the other hand, her statement that she “feels like” individuals making $500,000 per year can pay another $2,600 on the last $100,000 gives the impression that that constitutes the whole tax on it.  (Keep in mind that most people make less than $100,000 total, that they get a proportionally large discount from deductions, and that they pay a little out of every paycheck, so $2,600 on $100,000 it might intuitively feel like it’s in the ballpark.)

But that’s not the case.  That last $100,000 would be taxed at $39,600 under Biden’s proposal.

Doing the math, under Biden’s proposal (focusing only on tax rates), somebody making $618,400 would pay a total income tax of $194,394, or 31.4%.  So, yeah, it’s not 39.6%, but one wonders whether the public would see those numbers as dramatically different on the scale of fairness.  On the flip side, if that’s not enough, what is?

Finally, if we’re going to determine tax policy on what the electorate “feels like” a fair number would be, then it’s even more important to state the numbers fairly.  If the code is too complicated for the public to do that, it’s probably (yet another) argument to simply impose a flat tax rate that everybody pays.

As usual the attempt to be “progressive” creates opportunity for dishonesty and deception.

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