Paul L. Caron

Tuesday, August 21, 2007

More on The Two-Income Tax Trap

Last week, I blogged Todd Zywicki's Wall Street Journal op-ed, The Two-Income Tax Trap.  Todd follows up with an even more detailed post on The Volokh Conspiracy:  An Even More Confusing Presentation of the Two-Income Trap and Taxes.

[T]he difficulty with presenting the data in this manner is that it obscures the underlying dynamic of what is happening in the example. Adding the second worker increases household income by 75% --this is actually a greater increase than the expenditures on mortgage, automobiles, and health insurance, all of which increase by less than the income growth of 75%. The problem is that total tax obligations over this period increase from about $9000 to about $22,000 -- an increase of about 140%. Thus, assuming that the authors' argument is theoretically sound (a proposition open to question) it seems clear that the increase in tax obligations is the driving dynamic in their example.

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One more time.

There is NO WAY a married couple with $67,800 of salary income and two children is paying total federal income taxes + Social Security + Medicare on $67,800 that comes anywhere near $22,000. The total of those federal taxes is LESS THAN $10,000.

Without doubt, the 1970s couple did NOT pay $9,288 of federal income, Social Security and Medicare taxes on $38,700 of income. Maybe taxes did increase 140% over the time span but if they did, it was from some relatively small number to a max of $9,900 (probably LESS).

I don't know if the author if the cited piece was being deliberately dishonest or is simply woefully incompetent. MAYBE IT IS BOTH!

For crying out loud doesn't anyone have any sense of skepticism whatsoever? Isn't anyone capable of crunching the numbers for themselves?

Posted by: Bill | Aug 21, 2007 6:14:15 PM

The WSJ of August 22, 2007 has several letters containing the same cry identified above: there is no way someone with that salary is paying that tax figure. As a practical matter, a single-earner family of four with twice that salary (yes, $130,000) may have a total state-and-federal income and payroll tax of around $20,000, for a total tax burden (excluding property and state sales taxes) of just over 15%. Of course, this assumes a decent mortgage interest deduction, claiming two child credits, and maxing out on 401K.

Posted by: TPC | Aug 22, 2007 8:44:03 AM