For the last four years, President Obama has been pushing his plan to raise tax rates on people’s income over $250,000, but a new poll indicates that most people still don’t understand one of the plan’s most basic concepts.
OK, it’s a poll conducted by my journalism grad students at NYU, and it’s not highly scientific. But I can say with a reasonable degree of certainty that it’s more accurate than the Gallup and Rasmussen polls were about the election.
Here’s the Obama plan in brief. The Bush tax cuts would be extended for households with an annual income under $250,000 (or $200,000 for individuals), but the tax cuts would expire on any income above $250,000. That means, for example, if you make $300,000, your tax rate would rise a few percentage points, to the Clinton-era rates, but only on the portion above $250,000; in this case, only on $50,000. Bottom line: no one—not a billionaire, not someone making $251,000—would have to pay more taxes on that first $250,000.
There’s a widespread misconception, however, and it’s causing a lot of unnecessary fear. It’s the faulty belief that if your income is above $250,000, you’d have to pay the higher rates on all your income, as if you were suddenly being moved entirely into a higher tax bracket. That is wrong.
But our poll—which, as far as I know, is the sole poll specifically on this $250,000 question—suggests that most people are making this mistake.
When my fourteen students asked five people each (one asked four) how the tax plan would work, they found that of the sixty-nine respondents
46 percent incorrectly said that one’s entire income, including the first $250,000, would be taxed at higher rates;
37 percent correctly said that only income over $250,000 would be taxed at higher rates; and
17 percent said they didn’t know.
So what we have here is a hefty 63 percent who were either wrong or didn’t know how the tax-rate raises would work.
You can say the sample size was small (agreed) or “skewed”—NYU students, naturally, talked to a lot of New Yorkers—but the students didn’t go looking for people who couldn’t do simple math. One student said, “All of the people I spoke with are college educated, and three out of five have advanced degrees. The only person who knew the correct answer, though, was someone who works directly in finance and who is currently getting an MBA. He understands tax regulations professionally.”