Soaking The Rich Or Adding Brackets?

I still think that reducing the charitable donation deduction makes more sense than adding a surtax for the rich in paying for health care reform. Both hit similar groups of people but the talking points are much easier with capping the charitable deduction - you mean people don't give out of the goodness of their hearts, but to get a tax break? It's just an easier sell.

But as the House appears to be moving toward a surtax, let's be clear about it:

The proposal calls for a surtax on individuals earning at least $280,000 in adjusted gross income and couples earning more than $350,000, said the chairman, Representative Charles B. Rangel of New York.

It would generate about $550 billion over 10 years to pay about half the cost of the legislation, Mr. Rangel said. As the proposal envisions it, the rest of the cost would be covered by lower spending on Medicare, the government health plan for the elderly, and other health care savings [...]

But emerging from daylong committee negotiations Friday, Mr. Rangel said the income surtax would take effect in 2011 and begin at 1 percent of adjusted gross income — earnings before deductions like those for mortgage interest and charitable contributions — and would apply to individuals earning more than $280,000 and couples earning more than $350,000.

The surtax would be increased for individuals earning more than $400,000 and couples earning more than $500,000, and step up again for individuals earning over $800,000 and couples earning above $1 million. The precise extent of these increases has not been announced.

This looks like adding tax brackets, in effect. And we need to add tax brackets, especially at the higher end - I would like to see tax brackets at $3 million and $5 million as well. If you really want to stop the bonus culture on Wall Street, you tax income at the highest levels with brackets that discourage those lump sum payments over a certain level. A surtax like this will seem like a micropayment to people at this level, experiencing the lowest marginal tax rate in the history of America currently.

Like I said, I prefer the charitable deduction cap, but if this leads to emphasizing the importance of higher marginal tax brackets, I can live with it. And yes, this is true:

With this small tax bump for the relatively wealthy being proposed, look forward to the following bad press coverage:

Confusion between total and marginal tax rates.

Confusion between small business revenue and small business profits.

Stories about how in some places $350,000 isn't all that wealth.

...by the way, I'll sign up for Club Wagner, too.

With this post, we announce the formation of Club Wagner. It’s a (fictional) organization of people willing to acknowledge a basic economic reality: Taxes in the United States must rise.

At their current levels, taxes are too low to cover the kind of government that Americans have made clear they want — a government that includes Medicare, Social Security, a strong military and numerous other programs.

Our club is named after Adolf Wagner, a 19th-century German economist who predicted that taxes would rise as societies became wealthier. “As people grew more affluent,” as the writer Matt Miller has explained Wagner’s Law, “they’d want more of what only government could provide — a strong military, public order, good schools and assorted welfare benefits, services that private citizens would have trouble arranging for on their own.”