Back off me!

Byline: | Category: Economy, Taxes & Spending | Posted at: Thursday, 12 March 2009

If Whoopi Goldberg is getting up in arms about tax increases then this movement is crossing all kinds of lines.

And since we’re on the subject of taxes, let’s dispense with two untruths:

Untruth #1.  The tax increase is just a raise in the income tax rate of 3.6% for the top two or three percent of earners.

Truth:  The federal tax rate really increases by 16 percentage points under the President’s proposal!  Lifting the cap on social security taxes adds another 12.4% to the marginal tax rate (the tax rate paid on the next dollar of income) at the upper end of the scale.  The marginal tax rate on today’s highest earners is 38.9% (36% income tax plus 2.9% for the medicare portion of FICA).  It will increase to 54.9% under the President’s plan (39.6% income tax, 2.9% medicare tax, and 12.4% social security tax).  Today’s high earners get to keep, spend, and invest 61 cents of every additional dollar they earn; if the President’s plan take effect they will only get the benefit of 45 cents on the dollar.  That extra 16 cents lost changes the calculus on a lot of investment decisions, the effect of which is that the earnings of high earners will be substantially less.

Untruth #2.  Only the wealthy who make over $250,000 will see their taxes increase.

Truth:  Every wage earner making more than $106,800 will see a 12.4% jump in their tax rate.  Because social security is supposed to be a pension plan instead of a tax (your benefits are a function of your life’s earnings), the taxable portion of your income is capped so as to keep social security payments capped.  The current cap is $106,800.  Not only does the President’s plan sever that link between income and pension, it has a significant tax effect on a whole lot of upper middle income earners.  If you’re a high school principal in a high cost area of the country and your salary is $125,000, you’re going to pay an additional $2,257 in taxes.  A nurse anesthetist making $145,000 is going to see his tax bill climb by $4,737.  A successful software engineer whose salary including bonuses is $190,000 is going to lose another $10,317 to taxes. 

As Whoopi alluded to, that’s just the increase in federal taxes.  If you’re in California, the average family of four just got stuck with another $1,567 in new taxes last month.  Add the 10.3% state income tax rate to the 54.9% federal tax rate, and some Californians lose 65.2 cents of every new dollar they earn before they ever get to take it home.  Then they have to pay 7.25% sales tax with whatever is left over.  If you live in Manhattan it’s even worse.  The state income tax there is 6.85%.  (The New York State Assembly is currently considering a bill to increase that to 10.3%.)  The city’s personal income tax rate is another 3.648%.  There is a 8.375% tax on most goods and services, a 6% tax plus an 8% surcharge on parking, as well as additional city taxes on beer, cell phones, cigarettes, taxis, utilities, and more.

The combination of taxes means that the President’s plan will push hundreds of thousands of high income wage earners into a tax bracket of 70% or more.  No wonder Whoopi said for government to “Back off me!”


(ht: DG)

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9 Responses to “Back off me!”

  1. Sean Braisted Says:

    Bob,

    I’m having trouble finding it online, can you point me to the article/proposal in the current budget to completely lift the cap on FICA?

    Ed: Can’t imagine how you missed it; the proposal to raise or even completely lift the cap on FICA was frequently mentioned during his campaign.

  2. Sean Braisted Says:

    Oh, I thought you were talking about his actual budget proposal, not a brief mention a year ago of the possibility of lifting the cap on FICA, with numerous caveats like a donut hole for those making between 100K and 250K, as well as a reduced rate for those making over $250K.

    My bad.

    Ed: Show me his 2011 budget proposal when the proposed FICA tax increases kick in. Here’s what he said during the campaign and as recently as January.

  3. Sean Braisted Says:

    Oh, well going off that article (which wasn’t anything new, just a rehash of campaign proposals).

    Under Obama’s plan, the cap would be lifted for those making more than $250,000 a year, who would pay in the range of 2 to 4 percent more. The plan calls for a “donut hole” on income between $102,000 and $250,000, which would not be taxable.

  4. steve bourg Says:

    Bob: Thanks for the clip of Whoopi!! Seriously, it’s priceless that she’s angry about tax increases. Too bad she didn’t have the guts to say “Back OFF ME BARACK!! That would have been more honest! Obama’s raising fed rates when all the other rates, incl sales taxes are ridiculous. Yes, getting to 70% total is very possible. And remember, property taxes are paid effectively, not marginally, so that’s a few more %. Yes, looks like Barack may think it was alright for FDR to tax high-earners at 90%. Let’s just watch our economy burn while this moron has his fun with wealth and income-redestribution. Un-freaking-believable, isn’t it/he/his voters?

  5. Obama’s 16% tax hike on the rich | Les Jones Says:

    […] Bob Krumm: If Whoopi Goldberg is getting up in arms about tax increases then this movement is crossing all kinds of lines. And since we’re on the subject of taxes, let’s dispense with two untruths: […]

  6. og Says:

    yep.It’s just between 2 to 4 percent.

    LIKE ANY TAX IS ACCEPTABLE.

    Sorry. .0001 percent is not acceptable. “it’s not as bad as you say!!!”

    yes, it is.

  7. SayUncle » Taxes Says:

    […] Indeed: If Whoopi Goldberg is getting up in arms about tax increases then this movement is crossing all kinds of lines. […]

  8. N.U.G.U.N. Says:

    Yikes, NYC will work out to 77.223% (that doesn’t even count excessive cell phone and internet taxes).

    Hmm… I wonder if that number is the reason there is a shortage of .223 ammo?

  9. Jerry in Detroit Says:

    I might add that the “progressive” income tax is a lie. Oh really? Think about it. It is an income tax. The idle rich who are essentially doing nothing with their money don’t pay these taxes. The top income earners are successful business owners and senior level management who can set their own income. The lower income earners pay these taxes in higher cost of goods & services, less job opportunities, less business development, less benefits, etc. If you make $10,000 a year, you’re paying approximately $3,000 a year in these hidden taxes. All that has happened is that successful business people have been co-opted into de facto tax collectors.