Don't Mess With Taxes

As the debates over the next federal budget, reducing the deficit and tax reform continue, lots of ideas are being tossed around.

But one number seems to always come up: $250,000.

The quarter of a million dollars amount was a major focus of the 2008 presidential campaign, with Obama setting it as the income level at which he wanted to increase income tax rates.

Since he moved into the White House, the prez has held firm to that income amount, which is this week's By the Numbers figure:

So exactly how did $250,000 become the income dividing line betwen midde class and wealthy families?

"There's nothing magical about $250,000 per year," Roberton Williams, a senior fellow at the Tax Policy Center, told the New York Times in Rich and Sort of Rich. "It has no economic basis."

But, notes the newspaper article, $250,000 does have a political basis:

"The dividing line appears to have its genesis in 1993, when President Bill Clinton created a new tax bracket at $250,000 and raised the rate to 39.6 percent. Prior to Mr. Clinton’s new bracket, the highest earners were those defined by making more than $86,500; they paid 31 percent under the first President George Bush."

Why pick an income level that, when Obama began using it, was almost 15 years old? Wouldn't inflation over those intervening years have bumped it up somewhat?

Politics and perception again were a major influence:

"Aides that worked with Mr. Obama during his campaign said he latched onto $250,000 because it helped invoke President Clinton's era of economic prosperity in the 1990s — a demonstration, the argument goes, that higher taxes did not hinder growth."

That's an important lesson to keep in mind as the financial battles move forward, slowly, on Capitol Hill.

The figures that politicians use are as often as not for appearances rather than for any real bottom line effect.

Related posts:

• Don't hate me because I'm rich
• Taxes, wealth and relativity
• A look at who's paying how much taxes
• 'Tax us more,' say some rich Americans
• The burden on the richest taxpayers
• By the Numbers

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