Pissing Down Your Leg

Thoughts on Economics and Economic Policy

Three Cheers for Eric Schoenberg!

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Eric Schoenberg has an article at the HuffPo about how little he paid in federal taxes for 2010. Out of his income of $207,415 he was able to deduct $155,466 plus another $14,600, leaving him with only $37,349 in taxable income. His federal taxes then amounted to $2,173 for a tax rate of 1.0%. His take: Thanks a lot, but this is insane. Under my proposal he would have paid $43,147 in taxes, for a tax rate of 20.8%. Now, if that were the case he might be writing a different article (Why Are My Taxes so High?), but at least we would be paying the bills.

Now, there are a few problems with my tax proposal. The main one I’ve been thinking about, is that doesn’t take state (or local) income taxes into account which can lead to a higher marginal tax rate. Ideally, the maximum marginal rate would be 50% (half for me, half for the society once you get above a fairly high threshold), so maybe I should reduce the top rates somewhat. Of course, perhaps simply allowing the deduction for state and local income taxes takes care of that.

However, the more I think about deductions, the less sense they make, especially from a libertarian point of view. A deduction (outside of deductions for other taxes) is basically the government saying, “I approve of how you spent this money so you don’t have to pay income on it.” You bought a house? Great, don’t pay taxes on the interest. You pay for someone to take care of your young child? No tax on that. You spend a lot on medical bills? Let me just reduce your taxes for you. Why should the government have any business telling us (or at least influencing us on) how to spend our money? It doesn’t make sense.

I wouldn’t normally describe myself as a libertarian. I believe in the glue and benefits that society provides. In order to make it a society in which I want to live, a society that takes care of its poor, elderly, and unlucky, I’m willing to pay taxes and make my fellow citizens pay them as well. But I’m still an economist. I still believe that people should, for the most part, be able to decide to spend their money how they would like to.

But in order to do that we need to make sure that our higher income people, like Eric Schoenberg, pay their fair share. I’m glad he was willing and able to use his own example to show that the rich often don’t pay their fair share.

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Written by Liam C Malloy

April 27, 2011 at 2:53 pm

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