The Economic Outlook: May 15, 2011
Simple Deficit Reduction Arithmetic: A Comment on Kash Mansori

Felix Salmon Is Shrill: Yes, It Is Yet Another Down-and-Out-on-$250K-a-Year Article

I am told that the Fiscal Times regards Karen Hube's Down-and-Out-on-$250K-a-Year article as a great success, even though it has halved my chances of paying attention to the Fiscal Times.

Felix Salmon explains why they are wrong--for one thing, Karen Hube appears to have no idea of what "in the red" means: Hube’s article comes up with a hypothetical two-earner family — Mr and Mrs Jones — who between them earn $250,000 a year, and who “end up in the red” at the end of the year. How do they do this? Well, for one thing, they put $41,000 a year into savings; they also pay $9,069 per year on out-of-pocket medical expenses and going to the dentist. And check out those two cars, which add up to as much as $16,277 per year between them. Are these normal and reasonable expenses for the average family of four? Of course not: the average family of four earns roughly that much money ($66,346) in a year pre-tax — and then, first and foremost, has to buy or rent a house of some description. In any case, the Jones’s lifestyle ($19,000 a year for daycare and after-school activities; $1,571 a year for the dog) is hardly that of a “down and out” family....

Sorkin and Hube completely miss the point about marginal tax rates, which is that they’re marginal. If the tax bracket over $250,000 a year were raised to 99% tomorrow, the effect on the Jones family would be zero: no one’s suggesting raising federal income taxes on the Joneses by a penny. And in fact Hube’s analysis shows that federal income taxes are a very small part of the total Jones tax burden. Let’s say that they both got 15% raises, so that their household income rose to $287,500. And let’s say that the tax rate on income over $250,000 a year is raised to 39.6% from the current 33%. Right now, the Jones family pays somewhere between $29,909 and $34,317 in federal income taxes, depending on where they live. Let’s split the difference and call it $32,113. That’s just 12.8% of their total income. With their pay rise, they’d pay an extra $[2,475 as a result of the rate hike.]... The thing which really annoys me about all these pieces is that they seem to be based on the idea that a sensible fiscal policy would only raise taxes on people who are so rich that they never need to worry about money. Which of course is ridiculous...