Just The Facts

U.S.: Rich Get Richer, Everyone Else Pays Taxes

How capital rules the tax code and labor pays the bill.

Credit: topseller-Shutterstock.com

Credit: topseller-Shutterstock.com

Takeaways


  • The top 400 highest US earners in 2009 paid less than 20% tax on their earnings which had averaged $202 million each.
  • In contrast to the top 400 U.S. earners in 2009, the top 1% as a whole paid an average of 24% tax.
  • Even the top 0.01% (people earning at least $1.4 million a year) pay a higher tax rate than the top 400 US earners.
  • President Reagan championed taxing capital gains at the same rate as earned income.
  • “The era of taxing ‘capital’ at lower rates than ‘labor’ should now end.” -- Bill Gross (PIMCO)

1. The 400 people with the highest adjusted gross incomes In the United States made, on average, $202 million each in 2009, according to IRS data.

2. The top 400 paid an average U.S. federal tax rate of less than 20%, far lower than the top bracket’s marginal income tax rate of 35% then in effect.

3. They also paid a lower rate than the top 1%, which were people with adjusted gross incomes in 2009 of at least $344,000.

4. The 1% – including affluent upper-middle-class taxpayers – paid on average just over 24% of their adjusted gross income in federal tax.

5. Even the top 0.01%, people earning at least $1.4 million, paid 24%.

6. The 0.01% pays much lower average rates than their annual earnings might suggest because their income is dominated by capital gains and dividends.

7. As long as those forms of income are taxed at a preferential rate, the rich are going to benefit the most.

8. President Reagan championed taxing capital gains at the same rate as earned income, part of his 1986 tax reform, which lowered overall rates by broadening the tax base.

9. There’s nothing magical about capital gains from an economic point of view.

10. Recently, Bill Gross, billionaire co-founder of investment management firm PIMCO, wrote that, “The era of taxing ‘capital’ at lower rates than ‘labor’ should now end” because it is unfair.

Sources: Tax Policy Center; Edward Kleinbard, University of Southern California School of Law and former chief of staff for Congress’s Joint Committee on Taxation — and High Income, Low Taxes and Never a Bad Year by James B. Stewart (New York Times)

 

 

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  • simplyfantabulous

    Actually, taxing capital gains at two different rates based on the length of time involved in acquiring the gain makes plenty of sense, mostly because it tends to at least mildly discourage short-term speculation. Previously, US tax code treated income from investments held for less than one year as ordinary income. Surely it’s no mere coincidence average daily stock market volume ballooned by more than an order of magnitude once lower tax rates applied to profits realized in micro-seconds. Hot money, baby.