We’re still waiting to hear the official proposal, but you’re bound to hear a lot of talk this week in the mainstream media about the U.S. budget, deficit, and the plan to let the “Bush tax cuts” expire. Reporters are going to use the phrase “people earning more than $250,000 a year” with respect to tax rates increasing.
You probably heard this phrase a lot during the campaign in 2008. It was misleading then, too.
Obama has proposed allowing the top two tax rates of 33 percent and 35 percent to revert to what they were during the Clinton administration, or 36 percent and 39.6 percent, respectively.
In other words, tax rates may go up between 2 and 4 percent for the country’s higher earners. So, who does this affect? It’s not “people earning more than $250,000 a year.”
The answer is: people with a taxable income of more than $250,000 a year. Taxable income is your adjusted gross income minus your exemptions and either itemized deductions or the standard deduction. And if you’re earning that much every year, you’re probably itemizing.
Is this a good plan? I can’t say. I do know that when the middle class does well, everybody else does well, too. I think we’ve proved under Reagan and George W. Bush that giving tax breaks to just the wealthy people doesn’t stimulate the economy like it’s supposed to, but if you’ve got statistics that prove otherwise, please tell me in the comments.
But more importantly, I wanted you to know that the “250,000″ number that you’re going to hear will affect a lot fewer people than the mainstream media would have you believe. There’s a definite difference between income and taxable income.
Published or updated February 23, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.