Senate Democrats Also Unclear on How Taxes Work

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Time to teach some home economics. Photo: Brendan Smialowski/2011 Getty Images

As Intel Dan has noted, pretty much the entire news media has misreported President Obama’s tax plan because reporters don’t understand how tax brackets work. You know who else doesn’t understand that? Democrats in Congress. Apparently Treasury Secretary Tim Geithner had to break out the hand puppets and head up to Capitol Hill for a quick lesson:

Geithner tried to assuage concerns by telling Democrats that the president’s plan would ensure that all taxpayers would pay the lower tax rates on their first $250,000 of income — and they would be hit with higher tax rates only for earned income over that threshold, attendees said.

For those readers who, like our distinguished senators, don’t have a firm grasp on how tax brackets work, let me explain.

You couldn’t have a system where, if your income exceeded a certain threshold, all of it would be taxed at a higher rate. That would be completely unworkable — people just below the cutoff point would have to work very hard to stay below it. Instead, the way brackets work is that only income above a given level is taxed at the higher rate. A not-insignificant share of the right-wing panic over Obama’s talk of raising taxes on people earning more than $250,000 a year is based on the misinformed belief that once you hit the $250,000 threshold, you’ll suddenly be socked with a massively higher tax bill. In fact, the higher rate only applies to income over that level.

Obama’s plan to cut taxes below that level, of course, means that even the richest Americans would get a break on their income that falls into the lower brackets. This actually means that his plan lays out a lot of money on tax cuts for the rich — just not as much as Romney would:

Photo: Citizens for Tax Justice

I wonder how many of the Democrats who are proposing to raise the tax-cut threshold to a million dollars a year actually understand how the tax code works.