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Tax-Factless Wall Street Journal-omics

By Alice Cherbonnier
August 2, 2008

On July 29, the Wall Street Journal forfeited a full half page of op-ed space to a specious article called "Obamanomics Is a Recipe for Recession," written by Michael J. Boskin, a Stanford University economics professor and "senior fellow" of the Hoover Institution. Boskin chaired the Council of Economic Advisors under President George H. W. Bush.

Given such august credentials, one has to assume Boskin's analysis was mangled by editors. Surely he couldn't have been single-handedly responsible for making statements like these:

--He claims the Obama tax plan calls for "...dramatically raising marginal tax rates on the 'rich' to levels not seen in his country in three decades (which would make them among the highest in the world)";

--"People respond to what they get to keep after tax, which the Obama plan reduces from 55.4 cents on the dollar to 37.2 cents reduction of one-third in the after-tax wage!"

Boskin offered a companion chart, too, which shows what passes for academic rigor these days. Nowhere does Boskin make it clear that the current "top rate" only applies to that portion of annual taxable income in excess of $349,700.

Boskin asserts that "small business owners" and "two-earner middle-aged middle-class couples" will be dragooned into tax hell by Barack Obama, because Obama is proposing to raise the top rate to 39.6% instead of the current top rate of 35%.

Obama's tax plan, however, actually calls for lowering tax rates. Under his plan, there would be no additional taxes on taxable incomes up to a household income of $603,402 — but "Obamanomics" does call for tax increases of 3% to 4% for incomes beyond that point.

Here's the tax rate schedule for 2007 for a single taxpayer, to show how income taxes are currently calculated. Before the advent of tax charts and tax preparation software, the U.S. taxpayer did the math and knew that different levels of income were taxed at different rates.

Now that this mathematical calculation is done automatically, many citizens lack awareness of the progressive nature of the tax code. These citizens are easy prey for charlatans posing as economic experts who seek to create sympathy for those who are paying the highest tax rate.

If taxable
income is over--  

But not over--  

The tax is:



10% of the amount over $0



$782.50 plus 15% of the amount over 7,825



$4,386.25 plus 25% of the amount over 31,850



$15,698.75 plus 28% of the amount over 77,100



$39,148.75 plus 33% of the amount over 160,850


no limit

$101,469.25 plus 35% of the amount over 349,700

The current highest tax rate is by no means the highest U.S. taxpayers have seen, by the way.

To help finance World War II, the top rate went to 81.10% in 1940, then to 81% in 1941, up to 88% in 1942, and — in the last two years of the war — to 94%. This was on taxable income of $200,000 or more at that time, now worth about $2 million.

The top rate was in the low 90th percentiles during the 1950s and ’60s, and dropped to the 70th percentile range in the 1970s (still applied to taxable incomes of $200,000 or more, by this time worth about $1 million in today's dollars).

With the advent of the Reagan era, in part because of the fact that over time more income, in current dollars, was subjected to the top tax rate, the rates went to 50%, then 38.5%, and even down to 28% in 1988 and ’89.

The rate ticked up to 31% from 1990-93, and went to 39.6% from 1994 to 2000 (by now based on taxable incomes of over $250,000, worth about $309,000 in today's dollars). Then the rate dropped to 38.6% in 2001-02, after which it dropped to 35%, where it remains.

The real pain for the upper middle-class taxpayer comes from the rather substantial rates just below the highest. Those taxpayers are currently socked, in successive sextiles after the initial 10% and 15% rates, with 25%, 28%, and 33% rates before they get to the top tier of 35%.

In the end, under Obama's plan, the wealthiest people would pay more than they're paying now. But all taxpayers pay the same rates within income bands.

Boskin doesn't address their pain; he's only interested in the "top rate." Boskin makes no note of the fact that it is these relatively high tax rates in the middle that Obama would lower.

Remember, these rates would be lower for every taxpayer for that portion of taxable income within a given bracket. In the end, the wealthiest people — those earning over $603,402 in taxable income annually — would pay more than they're paying now.

Reporting on taxes and other economic topics can be difficult, it's true, because the topics are necessarily complex. One source of information the public should consult is a report called "An Updated Analysis of the 2008 Presidential Candidates’ Tax Plans," prepared by the Tax Policy Center of the Urban Institute and Brookings Institution and published on July 23, 2008.

What the public most definitely does not need is reporting by writers like Michael J. Boskin, whose bias demonstrates a lack of objectivity.

He doesn't even mention John McCain's tax plan — which, incidentally, would give substantial tax breaks to the very wealthy and progressively lower breaks to those with less income, finally allotting less than 1% tax decreases for households earning less than $66,354 (60% of taxpayers fall in this group).

Boskin does not even wonder, if everyone gets a tax break, where money will come from to keep the U.S. government afloat and enable it to pay off its alarming debt and reduce its deficit. If it's not going to come from taxpayers, from whence will it come?

Someone with Boskin's credentials should be making a good-faith effort to help the public figure this out, but — like the editors of the Wall Street Journal, who besmirch an otherwise excellent newspaper — he appears to be unable to bestir himself to think outside his think-tank-prescribed box.

Alice Cherbonnier is the Managing Editor of the Baltimore Chronicle.

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