Democrats' Communication Failures: Part 379

The failures of the Democratic Party in winning the hearts-and-minds battle are almost beyond enumeration. This applies even to the Progressive Caucus in the House, and reading its budget presented by Jan Schakowsky in the Bowles-Simpson Commission meetings (the Executive Summary, that is, at the behest of one of my favorite economics bloggers, Economists View) prompted this post. That budget is actually far superior to the one submitted by the Co-Chairs (but never actually adopted officially by the Commission) in dealing with the deficit over time while preserving and enhancing important national programs. However, writers on the liberal side just seem to have tin ears for the best wording so a point can be made without two-strikes against it.

So, let's take taxes. The Democrats propose raising the highest rates on high incomes back to about where we were in the Clinton years --that is, when the "job creators" were doing the best job of creating jobs ever, and getting richer than ever, before or since, despite those higher rates. There are two things about the typical wording from Democratic organizations or even the supposedly crack Obama team that just bug the daylights out of me. Both are evident in the following simple sentence from the Progressive Caucus Budget Executive Summary: "The current top tax rate is 35 percent for people making $379,150 a year or more."

(1)  The $370,150 figure applies both to a married couple filing jointly and a single filer. But when we say it applies to those "making" that amount, we open up the dialogue to a lot mischief and turn off a few million voters as well. When Obama proposed keeping rates the same except on "people making more than $250,000 a year," we were subjected to time-wasting woe-is-me complaints about how hard it is for a family of four to live in Manhattan or San Francisco (or for that matter, Chicago, according to a characteristic right-wing rant by a professor at the University of Chicago) to live on a measly $250,000. But nobody seems to remember that that is Taxable-frickin-Income, not what those people "make."  We mean Gross Income when we talk about what a person "makes." (To be really accurate, we would also add to that Gross any employer matching contributions to retirement accounts.) In any case, before personal exemptions, adjustments for maxed-out 401K and IRAs (especially for two earners), and multiple tens of thousands of deductions for property and state taxes, mortgage interest and contributions, Taxable Income of $379,000 will usually mean a Gross of $500,000 or more. It is a lot harder to waste our time with op-eds (and draw in middle class people to your side) by whining about barely making ends meet on $500,000, even in Manhattan or San Francisco.

Bottom line: at the very least, we should make clear that it is TAXABLE INCOME we are talking about -- it's the only thing tax rates can be applied to -- but should also remind readers that we are talking about a lot more in Gross Income that the people "make.'

(2) Why set up conflict by talking about "people" who make $379,000 or $250,000? When combined with the communication faux pas in No. 1 above, the couple who "make" $385,000 Gross, not really thinking too clearly while zoning out on the nightly news, thinks, damn, if our rate goes up five percentage points, we're going to be hit up for another $25,000 a year because it applies to "people" who make that amount. Besides that, we may feel demonized and even more inclined to identify with the beleaguered One Per Cent against that socialist in the White House. A few seconds of thought, before those toxic reactions set in, would remind them that these are marginal rates, and the extra percentage points will apply only to the amount over $379,150, or $5850. That means additional taxes of less than $300 a year, or an extra $25 dollars out of a monthly paycheck of over $31,000.  But wait: as we described it above, that $385,000 is what they "make." Their Taxable Income is probably more like $250,000, so the new marginal rate will not apply to them at all. It may well be that the extra $300 (or $25 per month) will only kick in after a couple has Gross Income of, say, $525,000 (and a monthly paycheck over $40,000) and the $385,000 is their Taxable Income. Hell, even the couple with a Gross Income of a million a year (or $83,000-plus per month) will only pay an additional $1000 per month -- so monthly take-home pay drops due to this draconian tax from, say, $53 K a month to $52 K. That some nasty class warfare, dont'cha think?

Yet we have potentially alienated those voters simply from a poor choice of words. It is not that the higher rate applies to "people" who "make" $379,000, it apples to the income, the Taxable Income, above that amount. Instead of instant hostility from likely opinion-leaders who are very well-to-do but not necessarily really wealthy, we could have something more like, "Oh, well, that won't be much. Ho hum."

Two simple communication rules when discussing taxes: it applies to the income, not the people, and it applies only to Taxable Income, not what you "make." Here are the formulaic words that should always, always, always be used: "We propose returning to the Clinton rates on the Taxable Income above $379,000/$250,000. Since that's only Taxable Income above that amount, after exemptions, deductions and so forth, it normally would not even apply to Gross Incomes below $500,000. In fact, people making just that amount in Taxable Income would see no change at all."