Tennesseefree.com

(Cross-posted from Lean Left)

Via RealClearPolitics, McCain is attacking Obama on taxes:

Re: Credibility Gap: Barack Obama’s Vote To Tax Those Making As Little As $32,000

This year, Barack Obama returned to the United States Senate twice to vote in favor of a budget resolution which raises income tax rates by three percentage points for the 25, 28 and 33 percent tax brackets. This would mean a tax increase for those earning as little as $32,000.

While Barack Obama campaigns on a promise of no tax hikes for anyone but the rich, we once again find that his words are empty when it comes time to act. In both March and June, Barack Obama could have put the force of his vote behind his words. Instead, he decided that “rich” now means those making just $32,000 per year.

[Emphasis mine.]

When I read this, I did a double-take: McCain thinks that people who make “just $32,000 per year” are in the 25% bracket? As is typical for Republican tax rhetoric, McCain’s camp is banking on the ignorance of the American public. They’re counting on Americans simply not understanding the tax code.

According to the 2008 tax code, the 25% bracket for single returns (and married filing separately returns) starts at $32,550; one assumes that this is where McCain is getting that number. But it’s a gross mischaracterization to say that an increase on that bracket “mean[s] a tax increase for those earning as little as $32,000,” for two reasons: the standard deduction, and the personal exemption. For the tax year 2008, the personal exemption is $3,500 for a single filer, and the standard deduction is $5,450. This means that the threshold for people who would be affected by the proposed tax hike isn’t $32,000, as McCain claims, but $41,500. By no means wealthy, but an individual with that income shouldn’t be struggling, either. And it’s a real income almost 30% higher than McCain’s figure, not far off of the median household income (including family households).

Consider a single person making $42,000 — $10,000 per year more than McCain’s advertised $32,000 figure. That taxpayer sees an increase in effective taxation of a whopping $15 per year (or about 0.04%). Yep, that tax hike sure would put middle-class taxpayers on the express train to the poor house, no doubt about it!

More detailed analysis below the fold.

But let’s look at it a little further. Suppose you’re a single taxpayer, with an annual income of $60,000, well over the median. Suppose, further, that you don’t itemize, taking only the standard deduction, nor do you take advantage pre-tax benefits like company health insurance, IRAs, or 401(k) programs. In other words, you’re the “worst case” taxpayer for your income. Your tax bill, under the proposed hike, goes from $9,106.25 (an effective rate of 15.2%) to $9,661.25 (effectively 16.1%), or a real-dollar increase of $555.00 (or 0.9%) per year. By way of comparison, the same income according to the 2002 tax code (after Bush’s first round of tax cuts) would have been $10,474, or 17.5% — meaning you’d still be paying substantially less in tax than you were six years ago. Remember, this is a “worst-case” scenario.

Now let’s consider a typical family. According to 2006 figures (the latest available), the median household income in this country is $48,201. According to the same figures, the median household income for “married-couple families” was $69,716. The 25% (would become 28%) bracket kicks in at $65,100, after pre-tax deductions, the standard deduction, and personal exemptions. So for the “worst-case” married couple (standard deduction only, no children, no pre-tax deductions like insurance, IRAs, or 401(k) accounts), the proposed tax increase doesn’t take effect until the first dollar earned over $83,000. For each child, that figure goes up by another $3,500 (for your typical family of four, the tax increase doesn’t take effect until $90,000). And every pre-tax deduction raises this effective figure even higher.

Let’s take it one step further even than that. Let’s consider the worst-case single and family taxpayers in the current 25%-cum-28% bracket — those making 1¢ below the threshold for the 28%-cum-31% bracket (where the increases start to be more significant). For a single taxpayer, that’s an income of $87,799.99; I wouldn’t call that rich, but that person ought to be doing pretty damn well for his/her self. That taxpayer sees a tax increase from $16,056.25 (effectively 18.3%) to $17,445.25 (effectively 19.9%) — a real increase in taxes of $1,389 (1.6%). For DINKs, it works out to an income of $149,349.99, and an increase from $25,550 (effectively 17.1%) to $27,540.50 (effectively 18.4%) — a real increase of $1,990.50 (1.3%). For the family of four, it’s an income of $156,349.99, an increase from $25,550 (effectively 16.3%) to $27,540.50 (17.6%) — a real increase of $1,990.50 (again, 1.3%). I don’t expect that many of these taxpayers will notice it all that much.

Distilling all of this, and comparing it against 2007 income statistics, my worst-case estimate is that this proposed income tax hike wouldn’t impact the bottom 70% of taxpayers, and would have only a small impact on about a third of the remaining 30%. Like it or not, fiscal discipline is going to require tax increases, and this seems to me like a fair and effective way of doing it. The tax increases aren’t limited to the extremely wealthy, but they are concentrated on the wealthier end of the income spectrum — the end that has benefited disproportionately from most of the tax cuts since the 1980’s.

Looping back around to McCain, these figures show that saying this proposed tax increase impacts “those earning as little as $32,000″ is not even in the same ballpark as the the truth. It might not even be the same sport. But McCain is clearly counting on your ignorance in this regard. And I suspect that the mainstream media won’t even bother to challenge him on this (Time’s blog, for example, merely reproduces his speech without comment), making them entirely complicit.