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The New York Times Reporters Do Not Understand How Marginal Tax Rates Work

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For whatever reason, an article titled "Investors Rush to Beat Threat of Higher Taxes" was published by The New York Times despite the fact that it contains a galling bit of stupidity, which could spread like a supervirus to the general public.

It is these three paragraphs in particular:

Kristina Collins, a chiropractor in McLean, Va., said she and her husband planned to closely monitor the business income from their joint practice to avoid crossing the income threshold for higher taxes outlined by President Obama on earnings above $200,000 for individuals and $250,000 for couples.

Ms. Collins said she felt torn by being near the cutoff line and disappointed that federal tax policy was providing a disincentive to keep expanding a business she founded in 1998.

“If we’re really close and it’s near the end-year, maybe we’ll just close down for a while and go on vacation,” she said.

This is a stupidity as persistent as it is avoidable. Ms. Collins, chiropractor from Virginia, is among the many people of affluence who have somehow survived without understanding how marginal tax rates work. As always, I am obligated to provide the following paragraph from Dean Baker's post, "Marginal Tax Rates: How To Explain Them To A Five-Year-Old Child" (not its actual title, but still):

The tax system brackets give marginal rates. This means that if the raise bumps you into a higher bracket then you pay more taxes only on the income in the higher bracket. Suppose that the tax bracket for income under $200k is 25 percent, and for income over $200k is 33 percent. If you get a raise that pushes your income from $195,000 to $205,000 then you only pay the higher 33 percent tax rate on the $5,000 that is above the $200k threshold not your whole income. Therefore, there is no (as in none, nada, not any) way that getting more money, and being pushed into a higher tax bracket will leave you with less money after taxes.

The New York Times' Public Editor Margaret Sullivan, notified of this over Twitter by Mother Jones' Nick Baumann, responded by saying, "You're not the first to complain. I'm going to let the business editor know that we've heard a lot about it." All well and good! Hopefully, she has by now checked out this story in her paper for herself. I encourage her to take up the task of publicly discomfiting the reporters who wrote the piece, as well as the editor who signed off on it, on the grounds that it would be good for public health.

Dave Weigel, who gets the hat tip on this one, raises the obvious question:

How do people still not understand that, and how does it color the debate over taxes? Barack Obama's managed to win two elections on a pledge to hike that top rate, and yet the people who don't understand it manage to get quoted every year.

I think maybe Dave just answered his own question. This is the sort of innumeracy that spreads casually, in minor articles such as this piece in The Times, where this aggravating ignorance somehow manages to find its way into the copy. It spreads in pieces like this piffling little "review" of Laura Laing's Math for Grownups, in which USA Weekend attributed this tax ignorance to Laing, and prompted her to leave a comment correcting the matter. (That comment has since been removed, and USA Weekend never acknowledged their error.)

And when it spreads, people start making stupid decisions, like turning down raises, or not expanding a profitable business.

Reporters, when they come across someone in the wild who clearly does not understand how marginal tax rates work, are obligated to explain to such people that they are incorrect, and should never spread their ignorance to their readers -- unless, of course, you intend to point out that people, such as the aforementioned Ms. Collins, are laboring under misconceptions about how tax rates work. Editors, when they catch their reporters making this mistake, should sit their reporters down and explain marginal tax rates to them, and then maybe make sure they are all clear on the whole "where do babies come from" thing because, who knows, that might come up some day.

To sum up: there are not "two sides" to this issue. You either understand how marginal tax rates work, or you do not, and reporters are absolutely allowed to point out who is right and who is wrong.

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