Barack Obama, Biglaw, Money, Politics, Skaddenfreude, Tax Law, Ted Frank

NY to… 147K? More About Barack Obama’s Tax Plan
(Or: Time to make the donuts?)

Barack Obama Senator Barack Hussein Obama Above the Law blog.jpg[Ed. note: Yesterday’s guest post about how Barack Obama’s tax plan might affect Biglaw associates, authored by Ted Frank, generated a record number of comments on ATL: 564 (and counting). It also generated lots of reaction throughout the blogosphere (links collected below). So we thought we’d invite Ted to do a follow-up.]
Here it is. Ted wrote it in response to the following reader email, which makes many of the arguments that surfaced in the 564+ comments. From an Obama defender:

I’m sorry, but you are losing your credibility by posting this false propaganda on Obama. Look at Obama’s website. It clearly states, “Asked About Raising the Cap, Obama said, ‘You Might Have the Equivalent of a Doughnut Hole’–NOT That He Would Completely Remove the Cap.” Obama “has stated in various venues that ‘his inclination… has been for a ‘donut’ where the uncapping would take place above some threshold income level — probably around $200,000 or $250,000′ his economic adviser Austan Goolsbee said in an email. A donut would protect a certain portion of income (e.g., between $100,000 and $200,000) from the payroll tax and could be phased in over decades.”

In addition, that “$34,000 paycut” in the post title is misleading. Even if all your assumptions were correct (which they weren’t), the after tax pay cut under Obama is < $20,000. I love your site, but please correct this ridiculous false article before you lose all credibility.

And now, without further ado, Ted Frank.
* * * * * * * * * *
First, as I show in the spreadsheet, a $20,000 tax increase is the equivalent of a $34,000 before-tax paycut for a New York City resident, which would have the same after-tax effect. The $34,000 figure is accurate: that’s just math. The Obama tax plan would have the same effect on a NYC fifth-year associate being paid market as a $34,000 paycut.
Obama has never said he will have a doughnut-hole, only that his SS tax could include a doughnut-hole. When Hillary Clinton attacked Obama at the November 15 Nevada debate for wanting to eliminate the cap, Obama didn’t say that the attack was incorrect; he defended the policy because eliminating the cap would only affect what he called the “upper class.” The press has accurately reported that Obama has also proposed eliminating the cap; even Obama’s own website links to a thinktank’s analysis of the benefits of a cap elimination.
It would be really easy for Obama to promise to include a “doughnut-hole” or to not eliminate the SS-tax cap. He certainly hasn’t been afraid to promise drastically expensive programs of new spending or even tax giveaways to large swaths of the population who aren’t paying much tax now.
But when it comes to Social Security, Obama is suddenly vague; when he does discuss details, it is to cite examples (e.g., Warren Buffett) that could not be accomplished without eliminating the cap entirely. And the only reason a politician acts that way is because he supports the more drastic, politically unpopular plan, but doesn’t want to get tagged with it before the election, and will say after the election “I only said I would ‘consider’ a doughnut-hole.”
How Barack Obama’s Tax Plan Will Affect You [Microsoft Excel file]
Additional discussion and links, after the jump.

Frankly, Obama’s plans to increase revenue don’t work unless he either breaks existing promises or both eliminates the cap and raises taxes on top of that, so the idea that he would surrender the majority of the revenue increase by creating a $250,000 doughnut-hole — when Congress has never provided a phased tax benefit to a single making $160,000, much less $240,000 — is implausible.
Finally, even if there would be a $200,000 doughnut-hole, it doesn’t change the marginal tax implications for the vast majority of BigLaw associates, who will still face marginal tax rates close to (and in NYC, CA, and DC, over) 50% and tax increases of five-digit magnitudes.
So, sorry, there’s nothing false or propagandistic about it. Again, it’s not politics, it is just math. There are certainly issues more important than money (as demonstrated by the fact that I work for a thinktank, at a fraction of the AGI I made the last full year I was in BigLaw), so money is only one dimension of one’s voting decision, but Obama’s policy proposals have dramatic financial consequences, and it is interesting to explore them.
A number of readers have asked for data for different years and states. I have constructed a more complex version of the spreadsheet that permits one to enter in different salaries, deductions, bonuses, income, and state tax data to determine your new marginal rates. This spreadsheet [Excel file; right-click to save] works for taxable incomes as low as $79,000. The spreadsheet includes an option: you can adjust the doughnut-hole assumption to see to what extent it affects you.
How Barack Obama’s Tax Plan Will Affect You [Microsoft Excel file]
wherein i generate 400+ comments [Lagniappe: an unserious blog]
Fruits of an Obama Presidency [Instapundit]
For Our Well Compensated Readers [The Weekly Standard: The Blog]
Ye Gods, That’s a Tax Hike! [The Campaign Spot / NRO Online]
Blog reactions to Obama, BigLaw, and Taxes [Technorati]
Earlier: Obama, BigLaw, and Taxes (Or: Obama = $34,000 Paycut)

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