Saturday, July 14, 2012

Robert Reich

Last week, Clinton administration Labor Secretary Robert Reich wrote an article, setting the record straight on Obama's proposal to maintain current tax rates on incomes below $250,000 while reverting to Clinton era tax rate on higher incomes. In doing so, he engages in a number of baffling self contradictions.
To hear the media report it, President Obama is proposing a tax increase on wealthy Americans. That's misleading at best. He's proposing that everyone receive a continuation of the Bush tax cuts on the first $250,000 of their incomes. Any dollars they earn in excess of $250,000 will be taxed at the old Clinton-era rates.
The "old Clinton-era rates" he is referring to are higher than the current rates. The top two brackets during Clinton's term were at 36.0% and 39.6%, compared to the top Bush era rates of 33.0% and 35.0% (PDF of historical tax rates). If the higher rates were restored, people who pay taxes at those rates would pay more than if the lower rates were maintained. People who don't pay taxes at those levels would see their rates stay the same1. "A tax increase on wealthy Americans" doesn't seem like a misleading (or worse) description of a proposal where anyone with a sufficiently high income has their taxes increase, and everyone else doesn't. Only someone who already misunderstands the function of tax brackets might misinterpret this claim.

Reich quotes the Wall Street Journal editorial page writing along these lines, and calls criticism of the tax proposal "pure demagoguery". He calls such critics "regressive" three times throughout the article (not including the title). But the Bush income tax rates these critics want to extend are definitively progressive, as all income taxes have been for almost a hundred years. Robert Reich seems to deserve the label of "demagogue" here. Later in the article, Reich mentions capital gains taxes which could fairly be viewed as regressive in combination with the normal income tax. However, he fails to identify capital gains as a regressive tax, perhaps to avoid criticizing the 20% Clinton era rate.

Reich attempts to rebut the argument that Obama's proposal would hurt small business.
Regressives also want Americans to think the president's proposal would hurt "tens of thousands of job-creating businesses," as the Journal puts it.
More baloney.
A small business owner earning $251,000 would pay the Bush rate on the first $250,000 and the old Clinton rate on just $1,000.
Congress's Joint Tax Committee estimates that in 2013 about 940,000 taxpayers would have enough business income to break through the $250,000 ceiling -- and, again, they'd pay additional taxes only on dollars earned above $250,000.
It can't be the number of businesses the WSJ says would be hurt that is "baloney". Nine hundred forty thousand tax payers with business income must represent at least tens of thousands of businesses. Reich must be claiming that increasing taxes on all of these people won't hurt their businesses. His argument supporting this claim is that only income above $250,000 will be taxed at an elevated rate. Without actually knowing how many of the 940,000 people are making significantly more than $250k, it isn't safe to assume that so few would be adversely affected.
Everyone is treated exactly the same. Everyone gets a one-year extension of the Bush tax cut on the first $250,000 of income. No "class warfare."
The view Reich claims to have, that taxing some initial amount of everyone's income the same is automatically fair, despite how greater sums are taxed, encouraged the following thought experiment. What if income tax brackets looked like this?

Would Robert Reich defend such a system from criticism on the grounds that "everyone is treated exactly the same"? Would he dismiss claims of class warfare because everyone has to pay the same taxes on the first $250,000 of income? I'm guessing not.

1. Strictly speaking, tax brackets are never exactly the same year to year as the income levels where brackets begin and end are adjusted annually.