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As President Obama continues to press his plan to slice $800 billion off the national debt by ending tax cuts for the top two percent of earners, on Sunday the New York Times profiled upper-income Americans trying to skirt the modestly higher bill. But the Times didn't merely fail to note the economic boom they along with most Americans enjoyed the last time the top marginal income tax rate hit 39.6 percent and the capital gains tax rate was at 20 percent. As David Weigel noted, to highlight the plight of the tragically well-off, the Times turned to "the rich people who don't know how tax rates work."

If this gambit sounds familiar, it should. Because just weeks after Barack Obama took the oath of office in 2009, ABC News similarly—and wrongly—warned of IRS horror stories for the affluent.

On March 2, 2009, ABC News featured Emily Friedman's article, "Upper-Income Taxpayers Look for Ways to Sidestep Obama Tax-Hike Plan." Under a subhead darkly declaring "President Would Slap More Taxes on Those Who Make Over $250K to Fund Health Care," Friedman explained:

President Barack Obama's tax proposal - which promises to increase taxes for those families with incomes of $250,000 or more -- has some Americans brainstorming ways to decrease their pay, even if it's just by a dollar.

A 63-year-old attorney based in Lafayette, La., who asked not to be named, told ABCNews.com that she plans to cut back on her business to get her annual income under the quarter million mark should the Obama tax plan be passed by Congress and become law...

"We are going to try to figure out how to make our income $249,999.00," she said.

"We have to find a way out where we can make just what we need to just under the line so we can benefit from Obama's tax plan," she added. "Why kill yourself working if you're going to give it all away to people who aren't working as hard?"

But the fear-mongering by those apparently unfamiliar with how marginal tax rates operate didn't end there:
Dr. Sharon Poczatek, who runs her own dental practice in Boulder, Colo., said that she too is trying to figure out ways to get out of paying the taxes proposed in Obama's plan.

"I've put thought into how to get under $250,000," said Poczatek. "It would mean working fewer days which means having fewer employees, seeing fewer patients and taking time off."

"Generally it means being less productive," she said.

"The motivation for a lot of people like me - dentists, entrepreneurs, lawyers - is that the more you work the more money you make," said Poczatek. "But if I'm going to be working just to give it back to the government -- it's de-motivating and demoralizing."

As it turns out, Friedman didn't merely fail to explain how marginal tax rates actually work (see IRS table above). She ignored that Obama not only ran on returning upper-income tax rates to their boom-time Clinton levels, but won voters earning over $200,000 a year by 52 to 46 percent. Instead, she included this ominous prediction from Peter Morici of the Robert H. Smith School of Business at the University of Maryland:
Morici says that he believes Obama's tax proposal could spark a kind of class war. "What Obama is doing is pitting the poor against the upper middle class," said Morici. "He'll tax the rich for the health benefits everyone else wants."
What followed the publication of Friedman's piece was a firestorm of criticism so overwhelming that ABC News apologized to readers and offered a completely rewritten piece the next day:

(Continue reading below the fold.)

Editor's Note: Yesterday ABC News published a version of this story which some readers felt did not provide a comprehensive enough analysis of Obama's tax code for those families making $250k or more. ABCNews.com has heard those concerns and after review has decided to post an updated version of the story.
And in that new version, financial adviser Gary Schatsky explained, "Just going over $250,000 doesn't mean it impacts your tax liability for every dollar before that. It impacts you at the margin."
Marginal or graduated tax systems like the one in the U.S. means only the money earned over a certain amount -- $250,000 in the case of Obama's proposal -- will be taxed at an increased percentage.

For instance, for a person earning $350,000, the first $250,000 of income would be taxed at lower tax rates, while the last $100,000 would be taxed at Obama's higher rate.

"Only the incremental earnings above [a quarter of a million dollars] are taxed at a higher rate," said Schatsky.

"[T]o focus keeping your income below a quarter million dollars is not going to have any spectacular magic for individual tax payers," said Schatsky. "The difference between $249,999 and $251,000 will probably have zero tax impact."

Fast forwarding to this week, the New York Times has made a milder form of the same mistake. In its Nov. 18 article describing investors trying to push capital gains into 2012 to avoid potentially a higher rate next year (20, not 15 percent), Nathaniel Popper and Nelson Schwarz introduced readers to a new potential victim:

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 "Investors Rush to Beat Threat of Higher Taxes," the Times did not correct Collins' misunderstanding. Nor did the paper note the research which has concluded while that lower capital gains rates don't increase investment, they do fuel increasing income inequality.

Mercifully, on Tuesday the New York Times ("Tax Talks Raise Bar for Richest Americans") performed a modest act of journalistic penance in telling the story of Anne Zimmerman, a small-business owner in Cincinnati. Zimmerman, whose two businesses had a combined annual profit of $250,000 to $500,000 in recent years, said the proposed tax changes seemed reasonable.

If all Mr. Obama's tax proposals for wealthy Americans were enacted, they would raise $1.6 trillion over the next decade. And an analysis by the Tax Policy Center, a nonpartisan research firm, found that the increases would be heavily weighted toward the wealthiest. Taxpayers with adjusted gross incomes over $1 million would see average increases of $184,504, the study found, with higher taxes on the ultrawealthy bloating that average. Those with adjusted gross incomes from $200,000 to $500,000 would face a tax increase averaging $4,446, with people toward the lower end having only a modest increase and people on the higher end paying several times more.

A married couple with two children earning $300,000 would see its effective tax rate increase to 21.1 percent from 16.5 percent, according to an analysis by the Tax Policy Center. A married couple with two children earning $2 million would see its effective federal income tax rate rise to 26.8 percent from 21.6 percent.

To Ms. Zimmerman, the Cincinnati businesswoman, that amount sounds reasonable.

"I'm not going to change my business decision-making process based on a few percentage points of tax increases," she said. "If it helps get the country on a better path, well, we're all in this together."

Especially, it turns out, when the press accurately explains how our tax system actually works.
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Comment Preferences

  •  What I don't understand (3+ / 0-)

    is that taxpayers making in excess of $250,000 usually have accountants.  If they had just called their accountant they would have had their fears allayed in about 15 seconds.  I'm beginning to believe people just like to panic!

    dress for dinner and be discreet.

    by moodyinsavannah on Tue Nov 20, 2012 at 11:59:20 AM PST

    •  Because as long as the tax hasn't been (5+ / 0-)

      implemented yet, and there is no proof otherwise, the accountant can lie to them about how it should work. That keeps their clients working to fight the tax increase.

      "Mitt Romney looks like the CEO who fires you, then goes to the Country Club and laughs about it with his friends." ~ Thomas Roberts MSNBC

      by second gen on Tue Nov 20, 2012 at 12:03:13 PM PST

      [ Parent ]

      •  I would take issue with this (0+ / 0-)

        (maybe because my father-in-law was a CPA). Accountants should not be in the business of lobbying their clients to take a political position on tax law. They should be advising their clients on how to minimize the taxes that they have to pay, lawfully.

        Those who do not understand history are condemned to repeat it... in summer school.

        by cassandracarolina on Tue Nov 20, 2012 at 12:18:13 PM PST

        [ Parent ]

        •  Neither should benefit managers at companies, (0+ / 0-)

          either, but they claim that insurance premiums will go up 50% under Obamacare, or some other ridiculous number. Or they claim it's Obamacare that is causing their premium increase, when it isn't true.

          I don't know where people have been, but this is a very political, divided country and one side likes to say whatever fuckall they feel like to scare people to their ideology.

          "Mitt Romney looks like the CEO who fires you, then goes to the Country Club and laughs about it with his friends." ~ Thomas Roberts MSNBC

          by second gen on Tue Nov 20, 2012 at 12:43:38 PM PST

          [ Parent ]

      •  I'd Think Accountant Demand Would Rise With (0+ / 0-)

        tax rates.

        We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

        by Gooserock on Tue Nov 20, 2012 at 12:24:15 PM PST

        [ Parent ]

  •  This is one of those zombie lies (6+ / 0-)

    that when you try to explain it to someone who subscribes to it, they look at you like you're nuts or stupid or a partisan shill deliberately trying to spin them. They have been so indoctrinated by the RWNM, they have internalized the lies even if they themselves aren't conservative. To undo this damage, we're going to need to be persistent about the debunking. It won't take hold overnight.

    Other lies:

    --The debt and deficit will bankrupt us and have to be fixed immediately
    --Governments should only spend money they have right now
    --Cutting taxes, debt and deficits stimulates the economy
    --Social Security is going broke
    --People who don't pay income tax are living off handouts

    Thankfully, that last lie is now widely disbelieved.

    "Liberty without virtue would be no blessing to us" - Benjamin Rush, 1777

    by kovie on Tue Nov 20, 2012 at 12:05:34 PM PST

  •  Hmmm. (2+ / 0-)
    Recommended by:
    shaggies2009, cotterperson
    A 63-year-old attorney based in Lafayette, La...

    "We are going to try to figure out how to make our income $249,999.00," she said.

    Cry me a goddam river.  I don't give a shit whether or not this allegedly educated woman from a red state (that sucks more out of the federal government than it contributes) understands "marginal tax rates" or not.

    Just another friggin' "I got mine, fuck you" whiner.

    Call your accountant, lady.

    "Mitt who? That's an odd name. Like an oven mitt, you mean? Oh, yeah, I've got one of those. Used it at the Atlas Society BBQ last summer when I was flipping ribs."

    by Richard Cranium on Tue Nov 20, 2012 at 12:06:16 PM PST

  •  A misleading phrase... (8+ / 0-)

    that you yourself are using:

    ...by ending tax cuts for the top two percent of earners...
    As you point out later, it does not end tax cuts for the top two percent of earners, it only ends those on the portion of their income over the $200k/$250K threshold.  Like everyone else, they keep the tax cuts on the lower porion of their income.

    GOP Agenda: Repeal 20th Century.

    by NormAl1792 on Tue Nov 20, 2012 at 12:09:21 PM PST

  •  Very nice job (2+ / 0-)
    Recommended by:
    jfromga, puzzled

    A couple additional points.

    From the ABC article:

    For instance, for a person earning $350,000, the first $250,000 of income would be taxed at lower tax rates, while the last $100,000 would be taxed at Obama's higher rate.
    Kind of true. Except that it's not people "earning $350,000", its people with taxable income of $350,000. That's after deductions like retirement plan contributions, mortgage interest, charitable contributions, and deductions for exemptions.  For many, those deductions can reduce the effect of the higher tax rates from the tax on $100K to less than $50K.

    And this from the NYT article:

    A married couple with two children earning $300,000 would see its effective tax rate increase to 21.1 percent from 16.5 percent, according to an analysis by the Tax Policy Center. A married couple with two children earning $2 million would see its effective federal income tax rate rise to 26.8 percent from 21.6 percent.
    It will not raise the effective tax rate anywhere near those numbers. I haven't looked at Tax Policy Center's analysis, but if that's what it actually says, it's horseshit.  A married couple earning $300K would see it's effective tax rate increased by 3.6% of income over $250K or $1,800. As a percentage of income, that would increase the effective tax rate by .6%.  (The same disclaimer from the ABC article referenced above related to the difference between "earnings" and "taxable income" would also apply. )

    The 2nd section of that same NYT quote is similarly flawed.  

    •  I think the TPC analysis (0+ / 0-)

      takes into account a typical mix of wages, dividends, and capital gains.  Barring action by Congress, the dividend rate increases from 15% to the taxpayer's ordinary income rate and the capital gains rate increases from 15% to 20%.  In addition, a high income taxpayer will be subject to the 3.8% medicare surtax on unearned income.  Taking all of those into account, the TPC numbers are probably correct.

      "Well, I'm sure I'd feel much worse if I weren't under such heavy sedation..."--David St. Hubbins

      by Old Left Good Left on Tue Nov 20, 2012 at 03:26:49 PM PST

      [ Parent ]

      •  if the quoted paragraph (1+ / 0-)
        Recommended by:
        puzzled

        is from the TPC, that can't possibly be accurate. "Earnings" are not subject to the 3.8% surtax, the rate (i think?) is .9% on earned income. Nor are "earnings" currently subject to capital gains or dividend preferential treatment.  "Earnings", as you probably know, have a very specific meaning.  If the author was simply rephrasing the TPC report, and errantly used the term, that reinforces the claim of the diary. Journalists are covering topics that they are simply not qualified to cover. If that's actually the word the TPC use, they blew it. It isn't even disputable.

        •  The TPC model (0+ / 0-)

          includes wages and non-wage income, including interest, dividends, and capital gains.

          Your definition of "earnings" is not widely shared.  Any kind of income may be said to be earned and thus can constitute earnings;  certainly it is common to refer to a bank account earning interest.

          "Well, I'm sure I'd feel much worse if I weren't under such heavy sedation..."--David St. Hubbins

          by Old Left Good Left on Tue Nov 20, 2012 at 06:32:26 PM PST

          [ Parent ]

          •  Right (0+ / 0-)

            That it's not widely shared is kind of the point of this diary. Too many people that don't know shit about taxes, share their opinions anyway.  

            I didn't make up my definition. It may not be widely shared, but it it's the only accurate definition. Tax law treats earned income very differently. Interest, dividends, capital gains are NOT earned income. Which is exactly why journalists that aren't qualified shouldn't write about taxes. Or interview and share the views of morons who think that working more can decrease their income.

            •  Said the Red Queen (0+ / 0-)
              I didn't make up my definition. It may not be widely shared, but it it's the only accurate definition.
              By definition, the meaning of a word is what the people using that word agree it means.  Neither grammatically nor in the context of a general discussion of tax law, is it incorrect to refer to earning income, and including within that wages, interest, dividends, royalties, and gains.

              "Well, I'm sure I'd feel much worse if I weren't under such heavy sedation..."--David St. Hubbins

              by Old Left Good Left on Wed Nov 21, 2012 at 10:39:06 AM PST

              [ Parent ]

              •  Wrong (0+ / 0-)

                Tax law defines earned income as wages and self-employment income, and with some other rare exceptions, that's it. Interest is not earned income Dividends are not earned income. Rental income is not earned income.

                •  That's your problem (0+ / 0-)

                  Let me put this simply for you:

                  "earnings" uses different letters than "earned income."

                  See?  They're what is known--to both laypeople and us specialist tax lawyers--as "different" terms.  I can understand your confusion, since they use some of the same letters and all, but in the end they are different.

                  Oh--and by the way: under the definition of "earned income" in Section 911 of the IRC (I think subsection (d)(4) to be precise, but it's not worth wasting the time to look it up) guess what.  "Earned income" includes--wait for it--rental income!

                  "Well, I'm sure I'd feel much worse if I weren't under such heavy sedation..."--David St. Hubbins

                  by Old Left Good Left on Wed Nov 21, 2012 at 09:52:46 PM PST

                  [ Parent ]

                  •  Pretty funny (0+ / 0-)

                    but still wrong.

                    And you really might have on that code section. But I think I had it covered under rare "exceptions". Taxpayers living abroad do get treated a little differently. Though I'll have to look up exactly how rental income is treated as earned income. I think you have that one wrong too.

  •  MSM lies for their evil rich masters, again nt (1+ / 0-)
    Recommended by:
    cotterperson

    R's take those tired memes and shove 'em, Denise Velez Oliver, 11/7/2012.

    by a2nite on Tue Nov 20, 2012 at 12:37:20 PM PST

  •  I explained this (0+ / 0-)

    to a friend, that even people making $250K per year keep the rates below $250K, and only pay extra on the amount over $250K.  And that such people are pretty darn comfortable,  and really won't miss a few percent on the amounts above $250K compared to people who earn more ordinary amounts.

    She agreed,  even at way less than that amount of money, at the height of her earnings, she was not hurting for money.

    The ACA does have some new taxes kicking in on upper income folks that make most of their money from investments, not ordinary earned income, they will feel a small pinch there, too.  It will impact some older folks who live off investments (but again, not somebody with $50k or $100k in stocks, bonds, etc.) as well as the big time financiers.

  •  Jon Perr, Update needed if you want to criticize (1+ / 0-)
    Recommended by:
    Jon Perr

    the media for getting the discussion about top rates wrong.  You need to get what you write correct.

    In 2013, the top tax rate will not be 35% if todays rate are continued and it will not be 39.6 if all the Bush/Obama tax cuts expire.

    Starting Jan 1, 2013, there is a new tax of 3.8% imposed on investment income (dividends, interest, capital gains, royalties, rent, etc. ) for those with incomes greater than $250,000.  This tax is part of the increased taxes in the Affordable Care Act. These taxes are paid through the IRS on Form 1040.

    So whenever you write 35% when discussing rates in 2013, you should write 38.8%.  Whenever you write 39.6%, this needs to be changed to 43.4% - which is above the rates during the Clinton years.

    The most important way to protect the environment is not to have more than one child.

    by nextstep on Tue Nov 20, 2012 at 01:06:52 PM PST

    •  To Clarify Further... (1+ / 0-)
      Recommended by:
      nextstep

      ...the new health care-related taxes are on investment income, not earned income from salary/wages.

      As the New York Times explained:

      One of the most closely watched variables will be whether President Obama wins support for increasing the tax rate on dividends and long-term capital gains, which now top out at 15 percent. Mr. Obama’s budget calls for the tax on capital gains to rise to a maximum of 20 percent and for dividends to be taxed at the same level as ordinary income, which could increase to 39.6 percent. Because investment income for those with adjusted gross income of more than $200,000 will also be subject to a 3.8 percent Medicare tax beginning in January, as part of the new health care law, the total federal tax on dividends could rise to 43.4 percent and on capital gains to 23.8 percent.
      So, you are absolutely right to highlight the new taxes related to the Affordable Care Act.  But their impact is on investment income and not today's 35% (or, if Obama gets his way, 39.6%) top marginal income tax rate.

      It is also worth noting that the capital gains tax rate was 28 percent for much of the Clinton presidency.  During part of the Reagan administration, capital gains and dividends were taxed at the same rate as income.

  •  I have to explain this to many people (0+ / 0-)

    I posted a similar diary. Had no idea this diary was posted. Good to see more people take notice of this idiocy.

    I like to ask people why a 4% increase riles them up so much. I understand if someone doesn't want to pay the 4% more, but to get bent out of shape? Then I ask them a question using numbers it is easy to round your estimates to. I demand a quick response for "If you are making $350,000(assuming the 250K is the highest marginal tax tier for the sake of simplicity), how much extra approximately would you pay under Obama if the rule is to have people earning more than 250K net pay 4% more on the highest tax tier?" "less than 5,000 more nearly 15,000, more than 25,000. Quick,  just make an approximate guess." I have gotten a lot of 15,000 answers. I have even gotten a more than 25,000 answer. "

    THen I ask them I understand if they decide its not worth it to work for that extra 100K if that means their take home is only 60K versus 56K minus the other payroll deductions/taxes of course. But dont oppose it because you think it is going to cost you 15-25000 more in taxes.

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