How We Solve the Taxing the Rich Problem

Time Magazine Cover Minnesota Wendell Anderson 1973

Top Tax Rate was 15% in 1973.

Minnesota’s Governor, Mark Dayton, would like to raise additional state revenue with a marginal income tax rate.  Right now the number looks like an increase for annual incomes over %150,000 for individuals and an increase for straight married couples earning over $250,000, roughly the state’s top 2% of income earners.

A couple things to note here.  First, it is a marginal rate.  Minnesota’s top income tax rate is 7.85%.  Dayton proposes an increase to 9.85%.  In Minnesota, marginal rate only applies to earnings within the applicable tax bracket.  Therefore, that extra 2% is added to dollars earned over $150,000 for individuals or $250,000 for straight couples.  So if you’re earn $10,000 more than the threshold, your extra tax is $200 above what it is today.

Is that a lot?  I would argue that it is a sustainable tax rate and worthy investment.  We can debate that.  But it doesn’t seem like the facts behind the figures ever get discussed.  Why?  Because it gets lost in this almost belittling “tax the rich” rhetoric.

Politicians and reporters almost chortle…”Ho, ho, ho!  Tax the rich!  $150,000 a year?  Do you think that’s rich?”  Of course everyone shakes his head…

Is $150,000 a year rich?  Again, this is something we can debate and frankly the idea of what is or is not rich is entirely subjective.  To someone making $20,000 a year, $150,000 might not be the wealth of fantasy, but it is still a hell of a lot more than $20,000.  To a very fortunate person earning ten times as much, %150,000 might not seem like much at all.  My point is, why talk about taxing the “rich” at all when the meaning  of “rich” is so arbitrary?

Minnesota State Capitol BuildingI always like to point out that 35% of Americans think they are in the top 10% of income earners to shed light on how little we really understand about income tiers in the first place.  The tax the rich arguments simply distract people from the facts in the matter.

Even the arguments that these two-percenters in Minnesota are small business owners is merely a distraction.  First off, it isn’t any more true that a business owner is among the 2% than he is mixed in with more “middle class” incomes.  The fact is the majority of business owners are not in this tier.  But even if they were…so what?

In reality, we are taxing incomes, not people.  Whether you think $150,000 per individual (or $250,000 for straight married couples) is rich or not is hardly the point.  It is an income enjoyed by minority of people in the state who also are more likely to pay a lower effective overall tax rate anyway.  Again, we can debate who benefits more from a strong economy, the well-to-do or the poor, but it would seem obvious that the higher incomes have more means to pay.

A more philosophically honest and morally direct criticism of marginal tax rates is to say that all people should pay the same rate — a flat tax — regardless of  income status, but we are nowhere near that.  Conservatives in this country openly defend lower taxes for the wealthiest even as they cry foul about taxes generally.  It is hard to see how you can make any fairness or moral argument if in the first place your policies create different tax liabilities and subsidies.  (So screw them.)

But once again, in defending existing unfair tax policies, conservative politicians hide behind the seemingly uncool and unpatriotic position that you cannot tax the rich.  The argument works because we really don’t know what rich is, but more importantly it works because it takes focus away from facts and puts it on misunderstood abstractions about wealth, fairness, and demographics.

So the solution:  Stop talking about taxing “millionaires and billionaires” and start talking about what the tax is, what the marginal rates are, and why these necessary taxes are good for all of us, rich and poor alike.

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