Rich is the New Poor

 

 

 

On January 4, the Wall Street Journal ran a story detailing how the “fiscal cliff” deal would affect the taxes of the wealthy. The article was standard WSJ fare, catering to its upper-end audience. But the graphic accompanying it was the height of silliness. A few weeks later, it caught the eye of someone in the left-wing blogosphere, where it has since been roundly derided for depicting a panoply of sad-sack rich people apparently devastated that President Obama has raised their tax rate by a few percentage points. Though the article itself was fairly straight-forward, the disconnect between the text — which stated that, “while the top 1% of taxpayers will bear the biggest burden, many other families, affluent and poor, will pay more as well” — and the illustration was major. I see the affluent folks in the graphic, but where are the poor ones?

Blogger Xenos wonders why even the minority couple whose taxes haven’t increased at all — convenient, isn’t it, that this Obama constituency makes out quite nicely under his policies — is so depressed. Did the “gifts” the president promised them not arrive on time? Xenos writes:

Yes, in that graphic, every single one of those families makes a six figure income, the lowest being $180 thousand, and yet because of the new tax hikes imposed by Obama, they all appear as though he ran over the family dog.

The median household income in the U.S. between 2007-2011 was $52,762, but the American people are all supposed to shed tears for those that make between three to twelve times as much? Seriously, how out of touch do you have to be to think that? Of course, this is the same outfit that supported a guy who thought making $250k qualified as “middle income”.

Economist Brad DeLong asks, “Just how many female-headed single-parent families with two children under 10 are there in the United States making $260K/year, anyway?” The answer, via one of his tweeting readers:

@delong [The] CPS March supplement finds 1-3 each year from 2008-2012 [in their random sample], suggesting a couple of thousand [single mothers with two kids under ten making $260K/year or more], out of 16-17 million single mothers

— Evan Roberts (@evanrobertsnz) January 16, 2013

DeLong’s riposte: “But they all read the Wall Street Journal, and are miserable.”

At Mother Jones, Kevin Drum helpfully annotates the tax increases faced by each representative Journal reader, highlighting exactly “why all these well-to-do wage slaves feel so brutally treated.”

Yup, that family of four faces the largest spike in tax rates, a whopping 3.3 percent of its $650,o00 income. The news, perhaps broken to them at the breakfast table in a Journal article or by the Fox Business Network host gesticulating wildly on the dining room TV (flatscreen, high-def, a cool $8,999 at your local Best Buy), has them crying into their oatmeal. Even the doe-eyed children, stoically clinging to their parents, look as if they’ve just been told Santa Claus isn’t real. You can imagine the conversation at the family meeting: But why, Daddy? Why does that evil Obama man want to take away my toys? The father glowers from the page, quietly furious that government thugs will now be redistributing the hard-earned sweat from his brow to the unworthy 47 percent. His wife, haggard and sleepless, tries to shield her babies from the realization that their mommy may have to choose between groceries and gas for her brand-new Mercedes. Will she be able to put food on the table? Will she have to choose between two weeks in the Bahamas and — gasp — slumming it in Cabo with the rest of the spring-break crowd? What will become of this poor family?

Yesterday, however, the Journal managed to outdo itself, running a headline that would tug at the heartstrings of that married couple, who surely sit down with their CPA every year for some quality estate planning time:

Can You Trust Your Kid With $5.25 Million?

Mr. and Mrs. Sad Sack may be pulling down a measly $650k at the moment, but give them twenty years! We’re talking some serious inheritance here. And the Journal is all over their future dilemma. Despite the fact that “Congress agreed on permanent estate-tax rules that are much more generous than many financial planners had expected,” the Journal knows that wealthy families are too smart to feel relieved:

Some aren’t celebrating, however. Instead, they are grappling with new questions about how best to set up trusts for their heirs—while keeping a measure of control over their wealth . . . . [S]ome ultrawealthy families are wondering whether they want to leave heirs that much tax-free money after all. Can their children handle a payday of as much as $10.5 million without losing their motivation to work hard and be productive?

No wonder the folks in the graphic look so distraught. They have worries.

Michael Puzo, chair of the private client group at Boston trust specialist Hemenway & Barnes, says he set one up for a Massachusetts couple late last year after they expressed worries that a child getting the money too soon might just “hang out on the beach,” Mr. Puzo says. Instead, the child will learn about the multimillion-dollar inheritance at age 30.

If millionaire parents are concerned that their kids will become beach bums, they’ll definitely want to hide the Journal’s style section from the same day, which ran a piece on “The New Bohemians” that held troublesome news for anyone concerned with Junior’s granola-crunching ways. “The haute hippie look reminiscent of faraway places has returned in a smart new form—and just in time for the warm days ahead,” the article states. Today’s boho duds can pair nicely with more polished pieces, however:

You could wear Mr. Altuzarra’s ikat print dress on holiday in, say, Ibiza, but his intention was to design something more functional. “We thought about it for our customer who has to go to work and then to a dinner,” he said.

A holiday in Ibiza? Come on, now. How will the average Journal reader afford Ibiza now that the IRS is requisitioning an extra 1 to 3 percent of her income?

Still, the examples of “bohemian chic” showcased in the article aren’t for actual bohemians. Like the ludicrous graphic and the risible concern for lazy millionaires, the sartorial selections cater to the Journal’s upscale audience. There are some seriously ugly Givenchy trousers for $2,265, a fringed Bottega Veneta tote for $6,650, and a crocheted Salvatore Ferragamo skirt (very Britney Spears, circa 1999) for $4,800.

 

 

 

 

 

 

 

 

 

 

 

For the down-in-the-dumps career woman with the $250k job and the stuffy un-boho blazer, may I suggest some retail therapy?

CNN’s Expiring “Better Press Corps” Membership

With depressing regularity (and an inattentiveness to comma usage), economics blogger Brad DeLong asks, “Why oh why can’t we have a better press corps?”

Good question. Today’s prime offender is CNN, which has a post on its Political Ticker blog that mimics, whether deliberately or not, conservative propaganda about tax increases. This toxic mix of sloppy journalism and economic illiteracy reinforces the Republican narrative — epitomized by Sen. Jon Kyl’s assertion that the president has a “sort of fixation with raising taxes above anybody making more than $200,000 a year” — that President Obama wants to “soak the rich.” The supposedly centrist news network writes (with the problematic bits highlighted):

The president campaigned on a message that tax cuts should be allowed to expire on households making more than $250,000, while Republicans have pushed for all Americans to benefit from continued tax cuts. In the ongoing negotiations, Congress has yet to come up with a plan that firmly sets a threshold figure.

Wrong. All Americans would benefit from the continued tax cuts that Obama is proposing. Whatever the merits of maintaining Bush-level tax rates for household (married, filing jointly) income under $250,000, it’s not just the “middle class” that would reap the benefits. The first $250K earned by any couple, rich or poor, would be taxed in the Bush-era brackets, which range from 10% for income under $17,850 to 33% for income between $223,050 and $247,000. The new categories, for income above the thresholds of $247,000 and $398,350, would tax the applicable money at 36% (up from 33%) and 36.9% (up from 35%). Neither of these two brackets would affect income below the cutoff points, contradicting CNN’s assertion that all “households making more than $250,000” would see all their tax cuts expire. All Americans would benefit from the continuation of the lower-bracket rates. It’s impossible, after all, to make $1 million without first making $250,000.

Of course, Obama’s own standard phrasing doesn’t help the matter either. When he says that taxes would increase on the top 2 percent, he doesn’t specify that he’s talking about effective rates – the average rates paid by each household. Indeed, high-earning households would pay more if the top rates went up. But they would still benefit from the so-called “middle class” tax cuts, as their first $250K would still be taxed at the preserved Bush levels. It’s more accurate to say that the president thinks some tax cuts should be allowed to expire on households making more than $250K. Or CNN could say that tax cuts should be allowed to expire on income over $250K. But it’s not right to suggest, as Republicans often do, that anyone making a penny over $250K would be hit hard by the president’s proposal, or that those households would see no benefit. If you make a penny over $250K, only that penny is taxed at the higher rates. The rest of your income is taxed at just the same rate as if you’d only earned $249,999. You’re still seeing some perks here.

The Political Ticker post also contributes to the general economic ignorance that afflicts the nation as a whole. The press’ seeming inability to grasp the concept of marginal tax rates has been a bee in the bonnet of progressive bloggers for quite awhile; it most recently manifested itself in the pushback against a Times article in which the reporter failed to point out the inaccuracy of a business owner’s claims about tax increases. Even the Times public editor weighed in on that one. The offending passage, in case you’re interested:

Kristina Collins, a chiropractor in McLean, Va., said she and her husband planned to closely monitor the business income from their joint practice to avoid crossing the income threshold for higher taxes outlined by President Obama on earnings above $200,000 for individuals and $250,000 for couples.

Ms. Collins said she felt torn by being near the cutoff line and disappointed that federal tax policy was providing a disincentive to keep expanding a business she founded in 1998.

“If we’re really close and it’s near the end-year, maybe we’ll just close down for a while and go on vacation,” she said.

In a blog post, public editor Margaret Sullivan agreed that the business owner cited uncritically by the reporter “appeared to believe that if the income went over ‘the cutoff line,’ that all of their income would be taxed at a higher rate. That’s not the case. Only the amount over the limit is taxed at the higher rate.” Sullivan’s verdict? “When someone gets it wrong, The Times has an obligation to set the record straight, right then and there.”

Sadly, it took not a (relatively) well-paid Times reporter but bloggers at new media sites like The Atlantic and The Huffington Post to expose the fallacy. Under the headline “Rich People Who Don’t Understand Taxes Should Be Told So,” Atlantic’s Derek Thompson penned a clarification that the folks at CNN — or at least the CNN intern who crafted the Political Ticker blog post while her superiors were drinking holiday mai tais in Tahiti — would do well to read:

When President Obama says he’s going to raise the top marginal tax rate, the key words there are “top” and “marginal.” According to the president’s plan, every dollar under $250,000 of earned income will enjoy the same tax cut it has today. He’s only pledged to raise taxes on income above that level by about 5%. So, if you make $251,000 next year, your tax bill wouldn’t go up by $12,000. It would go up by $50. A steak dinner, not a small car.

Basically, Kristina Collins is making a miscalculation that’s probably worth tens of thousands of dollars. No wonder she doesn’t want to expand her company.

More broadly, writers at New York Magazine and MSNBC have voiced exasperation at the media’s repeated and constant parsing of Obama’s tax plan – which would impose higher rates on income above $250,000 – in simplistic terms that suggest people making more than $250K would see no benefits. As Thompson notes, even millionaires would be taxed at the same rate as paupers on the first $250K of income. No one – not Warren Buffet, not Warren Buffet’s secretary, not even Sheldon Adelson – would see higher rates on that money. The higher marginal rates apply only to income above the cutoff of $247,000.

Most Americans already don’t understand marginal rates; like the woman in the Times story whose grasp of basic TurboTax principles is frighteningly weak, they think a top rate of 35% means the feds collect 35% of Adelson’s entire multi-million-dollar income. This confusion of effective and marginal tax rates plays into Republican hands by painting Obama’s plan as starkly dividing the country between rich and poor, when in reality “keeping rates low for the middle class” benefits the upper crust as well. For sure, lower rates on the first $250K are worth less, as a percentage of income, for someone whose income is 99% above that level. But it doesn’t mean that the lower rates are worthless. And it doesn’t make CNN’s phrasing any more accurate.

CNN isn’t the only offender here. Politico, which is notoriously more interested in crafting “narratives” (often proved false after reality intrudes in the form of, say, an election that Mitt Romney loses) and pushing the same inside-the-Beltway false equivalence that motivates the billionaires behind Fix the Debt to advocate lower tax rates at the expense of Social Security, also makes the error:

Backed by Obama, Reid has insisted that the lower rates should be allowed to lapse for taxpayers earning more than $250,000 a year, though the president has floated a $400,000 cutoff as a compromise. If there’s no deal, Reid is prepared to push for a vote Monday to extend tax rates for those who earn less than $250,000.

The lower rates would still apply, of course, to taxpayers who earn more than $250,000. They just wouldn’t apply to those people’s income above $250,000. It’s a subtle but crucial difference, though it’s hardly a surprise that an outfit like Politico — which all too often hews to the counterfactual Pete Peterson line that going over the “fiscal cliff” would be bad for deficit reduction — would fail on basic math.

Less excusable is this post from Bloomberg’s opinion section. Coming from a news organization ostensibly dedicated to business journalism, this is particularly irritating. Paula Dwyer seems no less informed about marginal tax rates than the chiropractor in the Times story. Hint to Dwyer: Don’t finish Obama’s quotation for him if your paraphrase mischaracterizes his position:

“If all else fails,” Obama said, the first bill on the House and Senate floors, once a new Congress convenes on Jan. 3, would cut taxes for households earning less than $250,000.

The sloppy language at Bloomberg isn’t restricted to its opinion writers. A news article contains the following distortion:

Republicans and Democrats agree that George W. Bush-era income tax cuts should be extended for the vast majority of taxpayers. Obama and other Democrats want to let the tax cuts expire for the top 2 percent, or married couples earning more than $250,000 a year. Republicans oppose higher tax rates for any income level.

Actually, some of the tax cuts would be extended for all — not just the vast majority — of taxpayers. The top 2 percent would see some, but not all, of their tax cuts expire. The article’s phrasing is more a sin of omission; it’s not technically wrong to say tax cuts will lapse for couples earning over $250K, but it is incomplete.

Some news organizations, however, get it right. It seems silly to give props to the Washington Post and ABC News for the simple fact that they refer to income instead of households when writing about taxes, but on this issue bar is awfully low. Here’s ABC, from a blog similar to Political Ticker — proving, I suppose, that rapid-fire posting is not an excuse for inaccuracy:

Reid’s backup legislation would reflect the Democrats’ side in this quagmire, demanding a tax boost for household incomes greater than $250,000.

And here’s the Post:

Republicans were seeking tax increases only on income higher than $400,000 or $500,000 a year, while Obama wanted to set the threshold at $250,000 a year.

Despite the previous kerfuffle over marginal tax rates, the Times is also clear:

With the Bush-era tax cuts expiring, Mr. Obama and Democrats have said they want tax rates to rise on incomes over $250,000 a year; Republicans want a higher threshold, at perhaps $400,000.

Take note, CNN. That wasn’t so hard, now was it?