Atlas Is Bluffing About Shrugging

Obama’s trying to raise taxes on those making over $250,000 a year, and the people in that group [well, enough for an anecdotal news story, anyway] say they won’t stand for it:

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.

So far, Obama’s tax plan is being looked at skeptically by both Democrats and Republicans and therefore may not pass at all.

“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?”

My co-contributor Doug at his personal blog, Below The Beltway, and Bruce McQuain of QandO quote approvingly, and with the obligatory libertarian allusions to Atlas Shrugged.

But I don’t buy it. First, there’s the point in the article that this is a matter of marginal taxation. If the top marginal rate is raised from 35% to 39.6%, that doesn’t mean that someone making $250,001 will pay 4.6% more in income taxes than someone making $249,999. It means that they will pay 4.6% more on any dollar earned above $250K.

This isn’t a huge increase. Is it really believed than high-income workers will stop trying to increase their income from $300K/year to $400K/year if it means the government will take an extra $4600 on top of the $35K they’re already taking? I don’t think so. The difference in tax rates isn’t quite to “walk away” territory yet.

Granted, this shouldn’t be taken as a suggestion that I support these tax increases. I think the idea that the government should take 35% of someones marginal income at higher levels is absolutely sickening, and it’s slightly more sickening to think that they’d take 39.6% of that income. But in the grand scheme of things, I don’t think it’s going to make that big of a difference, and I think those interviewed for this article are probably not going to make much of a change either. Yes, if their incomes are currently in the $250-265K range, they might change something (particularly if the suggestion of reducing the value of itemized deductions is enacted). But if they’re making $350K/year, I don’t think it’ll make much of a difference in their behavior at all.

This is bad policy, but let’s not be melodramatic about it.