Those wacky Sith

"Always two there are... no more... no less. A master and an apprentice."
-Yoda

OK, so I'm not quite old school when it comes to the Sith Blogroll, where I hope to recognize coherent voices from the other end of the political spectrum. My Sith Blogroll has usually had more than two on the list, though one (Wick of the Bailey) is inactive. Maybe Yoda was on to something.

But back to the matter at hand.

The current #2 on the Sith Blogroll, "Comments From Left Field," featured a post from "Kathy" piggybacking on Jonathan Chait's criticism of an ABC News story referring to the efforts of some high earners to work their way below the $250,000 threshold that attracts taxation attention from President Obama.

Chait criticized the story for making it appear that making that extra penny over $249,999.99 results in exposing all of that taxable income to the >$250,000 rate. And his criticism may be legitimate to at least a degree. I can't say absolutely one way or the other at present since ABC has revised the story in apparent response to observations like Chait's.

It is worth reviewing the nature of that criticism, starting at CFLF under their title "Explaining the U.S. Tax System to Stupid Reporters."

Yesterday, Jonathan Chait wrote a piece about an article at ABCNews.com that alleged a “trend” toward families making $250,000 trying to get their incomes down to just below that figure, so they would fall under the income amount at which Pres. Obama’s proposed budget would increase their taxes. As Jonathan pointed out, the reporter passed along this supposed astute financial strategy without debunking the false premise behind it:

Now, the obvious objection here is that the tax code doesn’t work that way.

As the updated version of the ABC News story helps make clear, the tax code proposed by Obama does make income-decreasing financial strategies plausible--just so long as they aren't based on the misconception Chait identifies. But Chait and the good folks at CFLF seemed oblivious to other aspects of the tax code that justified income reduction. In the comments section I pointed out one, that being the proposed donut hole in Social Security taxation. The updated story points out a bigger potential factor in limits on charitable deductions for high wage earners.

Schatsky said that the incentive to get under $250,000 may be more so if the tax plan outlines that an individual who goes over a prescribed limit would face a reduced value of their itemized deductions.

"If the value of all your itemized deductions goes from a 33 percent level to a 28 percent level than there would be a reason for people to do dramatic things to reduce their incomes," said Schatsky.

Regardless, CFLF offers a pat on the back for complaining bloggers:

Once again, blogtopia teaches the mass media how to do journalism.

Between the critical blog posts the the current state of the ABC News story, the critical point is obscured rather than made clear. A tax system that would literally impose a net loss for additional earnings would definitely discourage working harder to reach the higher income level. One would only implement that type of system if the society decided that earning over a certain wage was immoral or improper. Some on the left do think that way, I believe. Proposing goverernment-imposed caps on CEO pay fits that type of thinking, for example.

Additionally a tax system that merely punishes higher earning with higher taxation also discourages doing work required to boost income, though obviously not quite to the same level as punitive taxation.

The society that takes this path should not be surprised if the number of "rich" on which it depends for tax revenue shrinks as a result. After that, the taxation is adjusted down the income ladder a bit ... and so on.

Progressive taxation represents a slippery slope.