July 12, 2012 by David K. Sutton
Republicans Bank On Ignorance, Especially When It Comes To Taxes
President Obama revealed his tax plan on Monday. It looks a lot like the tax plan he supported as candidate in 2008 and in the first 3+ years of his presidency. Obama wants to extend the “Bush tax cuts” for the middle class while letting the tax cuts for those making over $250,000 expire at the end of this year. Republicans respond with their usual nonsense. They say we can’t raise taxes on the “job creators” in a bad economy. I call this the first deception by Republicans when it comes to taxes. They count on ignorance to advance their agenda. Republicans hope Americans believe that jobs are created by giving tax breaks to millionaires and billionaires. Nevermind that fact that the Bush tax cuts have been in place for over a decade and we have nothing to show for it.
The second deception by Republicans is purposely inflating the burden of raising the top tax rate by again counting on ignorance, by counting on the fact that many Americans don’t understand how income tax brackets work.
The Republican majority on the House small business committee unveiled a small-businessopen mic site on Monday to reveal “what small business owners are saying about the president’s plan to raise taxes.” Some of what they’re saying is that they don’t know what they’re talking about.
Steve Piechota of Netronix Integration in San Jose, Calif., leads the list of complainers. He explains that his business has grown from 3 employees to 50 over the past five years and that the “growth has kept our income low, as we’ve invested back into the company in the form of additional jobs and equipment.” But thanks to tax hikes, he fears that the growth has come to an end. “Bottom line,” he warns, “raising our taxes means we’ll quit growing, lay off people and stay under the $250k level for income.” His concern is reminiscent of a (since-corrected) September 2011 USA Today piece warning people that the extra money that comes with a raise “is nice, but it could very well bump you into the next tax bracket, possibly leaving you with less money than you had before the raise.”
The good news for Piechota, in case he’s listening, is that this isn’t how tax brackets work. In the event that Obama wins the election, one can only hope Piechota will consult with an accountant or other professional before laying off workers and deliberately reducing his income. The way U.S. income tax brackets work is that taxes are levied on marginal income. In other words, the rate applied to income earned over the $250,000 threshold is irrelevant to the first $250,000 worth of taxable income.
Under the president’s plan, the top tax bracket would move from 35% to near 40%. Republicans have no problem with Americans believing that those making over $250,000 will pay a higher tax rate on their entire income, except there’s one small problem: That’s not how tax brackets work. The top tax bracket only applies to income above the $250,000 level. So if you make $260,000, only $10,000 is subject to the top tax bracket rate. This is a crucial point, because it means that for most high income earners, their increased tax burden is not nearly as dire as Republicans would have you believe. Unfortunately President Obama hasn’t done a good job of explaining this, so it only aids Republicans in their deception.