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November 14, 2012 11:48 PM How We Talk When We Talk About Taxes

By Keith Humphreys

Imagine that a politician announces a plan to cut local/state/federal taxes on income up to $20,000. Is this policy:

(A) A tax cut for struggling working class Americans?, or

(B) A tax cut for all Americans?

Now imagine a different politician announces a plan to cut local/state/federal taxes on income up to $200,000. Is this policy:

(A) A tax cut for all but the wealthiest Americans?, or

(B) A tax cut for all Americans?

If you answered based on how the policies would likely be described in American political discourse, you probably chose A as the best answer for both questions. But answer B is factually correct in both cases.

When we talk about taxes we tend to talk about groups of people when it would be more accurate to talk about income. If you make $80,000 a year and taxes are cut on the first $20,000 of income, you pay lower taxes because of a policy that “cuts taxes on America’s struggling working class families”. If you make $800,000 a year and taxes are cut on the first $200,000 of income you pay less tax due to a policy that “benefits all but the wealthiest Americans”.

The explanation for this disjunction between description and reality may be that it plays better politically for some political actors to speak of groups with putatively non-overlapping incomes (e.g., “the wealthy”, “working families”, “the poor”) than it does to acknowledge that no gets to the higher tax brackets without passing through the lower ones shared with the rest of population.

To a short order cook making $20,000 a year, it may seems appealing to think that an income tax cut that has been capped at $20,000 uniquely benefits people like him, and the politician who proposed the policy may try to foster that perception. But of course people making more than the cook also get a tax cut on the first $20,000 they make. Likewise, a sociopathic millionaire lobbyist may make political hay by saying that a tax cut on incomes up to $200,000 does not help America’s “job creators”, when it fact it is a handsome tax cut for people such as himself.

[Cross-posted at The Reality-based Community]

Keith Humphreys is a professor of psychiatry and behavioral medicine at the Stanford University School of Medicine.
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