JONATHAN CHAIT MAY 12, 2011
I've been writing a lot about the Wall Street Journal's arithmetically incorrect editorial claiming that the total income of the rich isn't enough to close the budget deficit. There's another part of the argument I let slide because it was merely misleading rather than outright false:
So who else is there to tax? Well, in 2008, there was about $5.65 trillion in total taxable income from all individual taxpayers, and most of that came from middle income earners. The nearby chart shows the distribution, and the big hump in the center is where Democrats are inevitably headed for the same reason that Willie Sutton robbed banks.
Most of the money comes from middle income earners. the journal helpfully constructed a chart to illustrate the point:
The chart has been making the conservative blog rounds, from Powerline to Hoosierpundit to Reihan Salam to (not really conservative) Andrew Sullivan, who reproduces it under the headline "Where the Money Is." The chart most certainly does not demonstrate the Journal's point. It instead relies upon an optical illusion. Democrats have been arguing that their tax increases should solely effect income over $250,00 a year. The Journal makes that pot of income appear small by diving it up into seven different lines. See, the $100,000-$200,000 line is tall, and all the other lines to the right of it are short. That tall line must be where the money is!
But if you add up all the lines of income over $200,000, you get around $2 trillion. (I may be off, because I'm eyeballing it, but I'm not off by much.) That obviously far exceeds the nearly $1.4 trillion accruing to the $100-200,000 set. And it undermines rather than bolsters (though does not disprove) Reihan's argument that "the collective political influence of the upper-middle-class is greater than that of the ultra-rich."
I do agree that it would be desirable to increase revenue from a lower cutoff point than $250,000 a year in taxable income. But it's not impossible to balance the budget only by taxing the rich. (The House Progressive Budget proves you can do it.) Moreover, even the democrats' plan to raise taxes on income over $250,000 has produced a ceaselessly chorus of wailing about the hardships faced by people who earn barely over $250,000 a year and don't feel rich at all. (These stories, which have appeared constantly in the media, all seem premised on a failure to understand that the structure of tax brackets mean that only the portion of one's income over $250,000, rather than the whole thing, will be taxed at a higher rate.) Lowering the threshold even further will raise these complaints from a dull to a deafening roar.
All that said, it would make a lot of sense to lower the threshold of which households would pay higher taxes.