Who Is Rich?
December 08, 2010, 01:40 PM
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For 2010, federal income marginal tax rates begin at 10% and lurchingly rise to 35% on every dollar of taxable income above $373,650 for married filing jointly.

And then the marginal tax rates stop rising. Couples who make $374,000 per year, well, they're about as rich as it's worth thinking about, right.

A generation ago, it made sense not to worry much about squeezing a little extra tax revenue out of people making extremely gigantic amounts of income because there weren't very many of them and it didn't add up to all that much.

Today, though, the term "orders of magnitude" just comes up a lot more when thinking about income.

Consider baseball contracts as a well-known example. Free agency started around 1975, but by the 1980 season, only one player, Nolan Ryan, was averaging a million bucks per year over the life of his contract. During the 1989 season, Eddie Murray was averaging the most at $2.7 million. By 1996, Ken Griffey Jr. was getting $8.5 million, and then pay really exploded, all the way up to Alex Rodriguez getting $25 million in 2001. Today, Rodriguez remains the highest paid at $27.5 million.

So, today, the marginal tax rate on Alex Rodriguez is the same as on a utility infielder making the minimum major league salary of $400,000. How much would it really hurt the economy in the long run if Alex Rodriguez faced a marginal tax rate that was 5 or 10 points higher than that of the lowest paid major leaguer?