ABC News is running what I consider to be one of the stupidest articles I’ve ever read:
ABC News found wealthy Americans in the top 2% of wage earners who are, believe it or not, actively trying to figure out how to lower their income. Apparently, these folks have heard that President Obama wants to raise taxes on those who make more than $250,000 a year, so ABC spotlighted some of these folks who are seemingly desperate to get to below the threshold.Yep, you read that correctly. In the greatest economic crisis since the Great Depression, wealthy two-percenters making near $250,000 per year are purposefully trying to make less money!
All of this is based on an infantile understanding of Income Tax 101:
The ABC article is based on the premise that an individual’s entire income is taxed at the same rate. If that were the case, it would be possible for a family earning $249,999 to have a higher after-tax income than a family earning $255,000, because the family earning $249,999 would pay a lower tax rate.
But that isn’t actually how income tax works. In reality, a family earning $255,000 will pay the higher tax rate only on its last $5,001 in income; the first $249,999 will continue to be taxed at the old rate. So intentionally lowering your income from $255,000 to $249,999 is counter-productive; it will result in a lower after-tax income.
Someone remind me — why exactly do we have journalists?
Is it to repeat the drooling stupidity of ignorant dumbasses as fact?
Or perhaps do we generally want our journalists to give us the truth when faced with gob-smacking idiocy?
I vote for the latter.
Update: TNR has a brilliant solution to this brain-dead madness:
Commenter “ratnerstar” has the right idea here: It’s time to stop educating these ignorant rich people and start taking advantage of them. We have some number of high-income people out there who earnestly think they can increase their take-home pay by decreasing their salaries.This is one of the great scamming opportunities of all time, with the side bonus that the targets richly deserve their fate.
So I’m through correcting these people. My new line is: Yes, you’re right. That socialist Obama is creating an insane tax code that gives people a massive incentive to stay under $250,000 a year. If you find yourself over before the next tax year, just write a check to me for the balance. Call it income tax consulting. (I should explain, given the level of awareness we’re dealing with here, that business expenses can be deducted from taxable income.) In return for this, we can split your tax savings 50-50. What a deal!
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I have not read the ABC article, but much of business planning and tax planning from a legal perspective is to find ways of reclassifying income. For example, if dividends are taxed at a lower rate or not at all, as opposed to ordinary income, we advise clients to recharacterize. I doubt very much that anyone is doing the stupid things you note…that is, trying to hide the last $5k of income to be under the limit -- or they are pretty lametastic. You are probably looking at people making substantially more, or those who just got a general wake up call that they need to examine how they structure their income…in the same way people who drive Hummers SHOULD have re-examined their choice of ride all along, but did so only when gas got incrementally more expensive.
um, maybe you should read the article before you comment. the taxpayers they quote are specifically relying on a common myth about income tax brackets. maybe read the article and then come back and comment with the proper information.
"um, maybe"??? Who are you? A 14 year old girl from California? I appears you run this so you can decide what "proper information" is, but I believe there is nothing improper in my comment above. My point does not rely on the ABC article (thus the intro saying I've not read it). But I think it is incongruous to deride ABC's journalistic integrity for repeating bunkum, but then give them full credit for accurately portraying the thoughts and incentives of the subjects of its article. MSM outlets routinely reconfigure quotations and snippets to make people look dumb…they create straw men and offer them as the common man. It is entertainment AIMED AT YOU, WHO LIKES TO BELIEVE OTHERS ARE LESS INTELLIGENT THAN YOU. So, I doubt ABC's and your assertion that there are people actually out there doing such stupid things, and I challenge you to be more consistent in your doubt of ABC. I could be wrong, but it doesn't matter in relation to my broader point about taxes. Further, keep in mind that the people you are anxious to write off as backwards, if they are doing what is claimed, are probably just older (i.e., not 14) and have not kept up with the twists and turns in tax policy -- who can? It WAS the case back in the day that one could lower their overall tax burden substantially by getting into another bracket. Obsolete tax code is not even expunged from the code, which causes it to grow and be incomprehensible to all but tax wonks -- and the PEOPLE rely on dubious outlets like ABC for their information. Do you see the circularity here? You need to address your desire to call so many other people stupid. The world is not that simple, and it clouds your ability to have a rational discussion. [Although, I am myself fond of saying privately, "So many people to correct, so little time" due to the number of morons out there.]
you wrote: "I have not read the ABC article, but much of business planning and tax planning from a legal perspective is to find ways of reclassifying income."
If you read the ABC article, you'd realize that your point was not germane to the conversation. You wouldn't have known that unless you read the article before commenting.
OK, Miss Manners! I surrender. Please say at the end of such posts that one MUST read the article or get crapped on. The notes below say "Please try to keep your comments topical and respectful." If I was not precisely on topic enough for you, that's a shame…but I felt I was on topic. And you DID criticize the GENERAL thinking that having a higher income can subject one to more drastic taxes that go beyond the incremental tax on the income in the new bracket -- and that CAN happen, just not as described.
I hardly think that asking someone to be informed before responding is too much to ask.
The comment policy makes it pretty clear not to post off topic. Quit being such an ass.
Please also refer to the alternative minimum tax…one can get slammed HARD if they cross a certain threshhold.
The AMT threshold is not $250k, which was the subject of the ABC article. Again, your comment really isn't germane to the topic of discussion here.
I surrender my membership to your little tree house club that only talk about precisely what you want or allow…penny ante dictator, hah!
Hey, if you want to talk about the AMT, go write a blog post on it. Your comment didn't have much to do with the original post, which you'd have known if you read the article I was criticizing.
I have read this comment a couple times through and still have no idea what you are talking about. If I am reading it correctly, and I'd like to think I am, this is exactly the reason I don't care about the rich people's complaints about taxes because they can (and usually do) structure their income in such ways to minimize their tax accountability. My in-laws make an insanely more money than I do and pay less in taxes than I do by percentage of income. Rich people have those loopholes and opportunities. The middle-class is stuck paying whatever they are expected to pay.
I think you DO understand what I am saying as you essentially repeat the notion in the comment above….regardless of the ABC article's point or evidence, the rich restructure to assure that ORDINARY INCOME technically goes down by reclassifying the income as something else, like long term capital gains. The rich aren't being incentivized to work less (a retarded notion, and totally counter to the efficient market theories the right relies upon when it suits them), they are being incentivized to recharacterize income to avoid taxation….there's always a tipping point that will spur people to action, and it should be no surprise at all that a change in tax policy will cause some individuals to go past their own tipping point (even if it is based on misunderstanding -- which is totally irrelevant to the larger point on tax avoidance I was making above)
Similar to slapping some glue on volumes of Rousseau and Descartes and throwing them at the wall, you seem to figure that posting up some random seemingly intelligent things will eventually stick.
The point of the ABC News article — which you admittedly failed to read before starting to write feisty comments — was an exceedingly simple one. They interviewed (and failed to debunk) some people who were under the mistaken impression that a jump from $249,999.99 to $250,000.00 in income would somehow magically make ALL of their income subject to a higher tax bracket.
See above. You win. I have nothing interesting to say about such a very narrow point. Get help.
It's unfortunate that you'd find it necessary to resort to tired ad hominem attacks.
I went ad hominem because your response was so laden with douchebag sarcasm…I call'em like I see'em. This little bloggito is obviously more about you than the subjects…if posters don't dance to your precise tune, you get bent out of shape. Thicken your skin if you want to operate in the world of adults.
I see; you were compelled to go all ad hominem on me. If you don't like the blog, I suggest you go elsewhere.
I was invited to this blog, actually. But as Groucho Marx said, I wouldn't want to be a member of any club that would have me as a member, least of all this one. And truthfully, you don't think that the sarcasm you led with is intended and read as an attack on the interlocutor? You are internally inconsistent and egomaniacal with thin skin. No better a combination than that faced by John Belushi's character in Animal House. Best of luck.
Thanks for dropping by. I don't think I'll miss someone who, right off the bat, calls me a "14 year old girl from California"
Conservatives are jumping onto this article like it is evidence that people are going to stop working as hard now that they are being "punished" for being successful. Give me a fucking break.
People using the word "punished" in this context is what really drives me up the wall. It's just so much nonsense. Trotting out logic for a second, if taxing people is "punishment", aren't we ALL being "punished" by paying taxes? I used to be a libertarian/conservative type but I really don't understand how anyone with any intelligence or honesty can be a conservative right now. In order to sign on to the Palin/Jindal/Boehner/Limbaugh-driven movement, you need to leave your integrity and logic at the door.
Sorry. This is off topic by your terms, isn't it?
Astoundingly, it is the first intelligent thing you've said. We liberals should push the idea that taxes are membership dues, not punishment. If you want access to more of the club, so to speak, you pay higher dues. The rich rely on the commons FAR more than the poor schlub who just gets on the subway and then grinds out a few hours washing dishes.
Actually, it's not off-topic (i.e. it both relates to the original post and doesn't misconstrue what it was talking about due to a failure to click a link). I agree with you that the rich reap far larger benefits from the governmental structures we support with our tax dollars.
I agree. Conservatives are more than happy to stick behind Adam Smith's
principles of supply side economics, but fail to realize he also
advocated a progressive income tax. When have taxes ever given people
an incentive not to make money? That is the stupidest thing I have ever
heard. I consider myself fiscally conservative, but I refuse to reject
common sense to prove a point. These people are idiots. Talk about a
"victim mentality".
I'm going to assume you have never read Smith, as he has nothing to do with supply side economics
Sorry, you are right. I haven't read any Smith work since college, and I probably (obviously) wasn't paying attention as well as I should as I was young(er) and there were plenty of girls around to ensure I was not focusing on the task at hand. I was probably thinking something else (maybe laissez-faire) when I made this comment seeing as the rest of my comments had nothing to do with the supply side argument, rather the government levying taxes…