New York Times business reporter Andrew Ross Sorkin wrote a piece on Sunday (5/15/11) that tried to advance the argument that $250,000 actually isn't that much money to make in a year. The complaint is that politicians who advocate raising tax rates on income above $250,000 have chosen an arbitrary dividing line—above it you're rich, and you'll be taxed accordingly.
Articles like this are annoying for obvious reasons—we're being asked to listen to wealthy people complain that they're not that wealthy, once you factor in the private school tuition and a hefty mortgage. But they often mislead in other areas—especially when it comes to how much wealthy people pay in taxes. Ross Sorkin mentions a Manhattan father of two with a household income of $262,000 who sees his tax bill potentially going up, and he says, “I don't understand why people like us are lumped in with millionaires and billionaires.”
As Dean Baker points out, anyone who understands marginal tax rates should know that someone making slightly more than $250,000 would pay a higher rate only on that income above that amount—which, in this case, would amount to a few hundreds dollars at most in extra taxes.
The article goes on to discuss tax policy and budget deficits, and Ross Sorkin makes this point:
much of the income of the country's wealthiest people comes from investments, which is taxed at the long-term capital gains rate of just 15 percent.
So far, neither Democrats nor Republicans dare talk about raising the long-term capital gains tax out of fear that it would reduce crucial investments that could produce jobs.
No one talks about raising capital gains tax rates? The Congressional Progressive Caucus's blueprint, the People's Budget, offers an array of options for raising revenues, including this:
Tax capital gains and qualified dividends as ordinary income: This policy would eliminate the preferentially low rates on long-term capital gains and qualified dividends (currently 15 percent) and again tax all capital income as ordinary income under the marginal tax rate structure. The tax rate on long-term capital gains is scheduled to rise to 20 percent in 2013 and dividends are scheduled to be taxed again as ordinary income.
So someone's talking about it after all.
Part of Ross Sorkin's point is that more tax brackets would help clarify the difference between earning a mere $250,000 or, say, many millions of dollars. A fine idea—and also part of the People's Budget. If reporters gave it more attention, they might discover that the answers are staring them in the face.