Happy Tax Day, and Why the Top 1% Pay a Much Lower Tax Rate Than You
Apr 15, 2014
It's tax time again, April 15, when our minds turn toward paying the taxes we owe or possibly getting a tax refund. But what we don't think about enough is whether our tax system is fair. The richest 1 percent of Americans are now getting the largest percentage of total national income in almost a century. So you might think they'd pay a much higher tax rate than everyone else.
Something everyone should know on Tax DayRobert Reich has a special Tax Day message, explaining why the wealthiest 1% pay a much lower tax rate than the rest of ...
But you'd be wrong. Many millionaires pay a lower federal tax rate than many middle-class Americans.
Some don't pay any federal taxes at all.That's because they're allowed to deduct from their taxable income such things as large interest payments on mortgages for huge homes, also the costs of business entertainment and conferences (aka vacations at golf resorts), and gold plated health care plans.
Some also take advantage of tax loopholes that let them park some of their earnings in offshore tax havens like the Bahamas or the Netherlands Antilles.
And other loopholes that allow them to treat some income as capital gains - subject to a much lower tax rate than ordinary income. If you happen to be a hedge-fund or private-equity manager, there's a capital gains loophole designed especially for you.
Consider the Social Security payroll tax and the situation is even more lopsided. That tax applies to every dollar of income up to a cap -- which this year is $117,000. Anything earned above the cap is not subject to Social Security taxes at all - meaning anyone with a high income pays a much smaller percentage of it in Social Security taxes than most people do.
Put these all together and you see why Warren Buffet, the second richest person in America, pays a lower tax rate than his secretary, as he readily admits.
State and local taxes are even more regressive. The poorest fifth of Americans pay an average state and local tax rate of over 11 percent, while the richest fifth pay only 5.6 percent.This isn't small change. State and local taxes account for about 40 percent of all government revenues.
Believe it or not, Republicans want to make all this worse by cutting taxes on the wealthy even more. Paul Ryan's new budget doesn't just slice Medicare, education, and food stamps. It also lowers the top federal tax rate to 25 percent.
When the rich are let off the hook in all these ways, the rest of America has to pay more in taxes to make up the difference - or have services cut because government doesn't have the funds.
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Robert Reich
Robert Reich, is the Chancellor's Professor of Public Policy at the University of California, Berkeley, and a senior fellow at the Blum Center for Developing Economies. He served as secretary of labor in the Clinton administration, for which Time magazine named him one of the 10 most effective cabinet secretaries of the twentieth century. His book include: "Aftershock" (2011), "The Work of Nations" (1992), "Beyond Outrage" (2012) and, "Saving Capitalism" (2016). He is also a founding editor of The American Prospect magazine, former chairman of Common Cause, a member of the American Academy of Arts and Sciences, and co-creator of the award-winning documentary, "Inequality For All." Reich's newest book is "The Common Good" (2019). He's co-creator of the Netflix original documentary "Saving Capitalism," which is streaming now.
It's tax time again, April 15, when our minds turn toward paying the taxes we owe or possibly getting a tax refund. But what we don't think about enough is whether our tax system is fair. The richest 1 percent of Americans are now getting the largest percentage of total national income in almost a century. So you might think they'd pay a much higher tax rate than everyone else.
Something everyone should know on Tax DayRobert Reich has a special Tax Day message, explaining why the wealthiest 1% pay a much lower tax rate than the rest of ...
But you'd be wrong. Many millionaires pay a lower federal tax rate than many middle-class Americans.
Some don't pay any federal taxes at all.That's because they're allowed to deduct from their taxable income such things as large interest payments on mortgages for huge homes, also the costs of business entertainment and conferences (aka vacations at golf resorts), and gold plated health care plans.
Some also take advantage of tax loopholes that let them park some of their earnings in offshore tax havens like the Bahamas or the Netherlands Antilles.
And other loopholes that allow them to treat some income as capital gains - subject to a much lower tax rate than ordinary income. If you happen to be a hedge-fund or private-equity manager, there's a capital gains loophole designed especially for you.
Consider the Social Security payroll tax and the situation is even more lopsided. That tax applies to every dollar of income up to a cap -- which this year is $117,000. Anything earned above the cap is not subject to Social Security taxes at all - meaning anyone with a high income pays a much smaller percentage of it in Social Security taxes than most people do.
Put these all together and you see why Warren Buffet, the second richest person in America, pays a lower tax rate than his secretary, as he readily admits.
State and local taxes are even more regressive. The poorest fifth of Americans pay an average state and local tax rate of over 11 percent, while the richest fifth pay only 5.6 percent.This isn't small change. State and local taxes account for about 40 percent of all government revenues.
Believe it or not, Republicans want to make all this worse by cutting taxes on the wealthy even more. Paul Ryan's new budget doesn't just slice Medicare, education, and food stamps. It also lowers the top federal tax rate to 25 percent.
When the rich are let off the hook in all these ways, the rest of America has to pay more in taxes to make up the difference - or have services cut because government doesn't have the funds.
Robert Reich
Robert Reich, is the Chancellor's Professor of Public Policy at the University of California, Berkeley, and a senior fellow at the Blum Center for Developing Economies. He served as secretary of labor in the Clinton administration, for which Time magazine named him one of the 10 most effective cabinet secretaries of the twentieth century. His book include: "Aftershock" (2011), "The Work of Nations" (1992), "Beyond Outrage" (2012) and, "Saving Capitalism" (2016). He is also a founding editor of The American Prospect magazine, former chairman of Common Cause, a member of the American Academy of Arts and Sciences, and co-creator of the award-winning documentary, "Inequality For All." Reich's newest book is "The Common Good" (2019). He's co-creator of the Netflix original documentary "Saving Capitalism," which is streaming now.
It's tax time again, April 15, when our minds turn toward paying the taxes we owe or possibly getting a tax refund. But what we don't think about enough is whether our tax system is fair. The richest 1 percent of Americans are now getting the largest percentage of total national income in almost a century. So you might think they'd pay a much higher tax rate than everyone else.
Something everyone should know on Tax DayRobert Reich has a special Tax Day message, explaining why the wealthiest 1% pay a much lower tax rate than the rest of ...
But you'd be wrong. Many millionaires pay a lower federal tax rate than many middle-class Americans.
Some don't pay any federal taxes at all.That's because they're allowed to deduct from their taxable income such things as large interest payments on mortgages for huge homes, also the costs of business entertainment and conferences (aka vacations at golf resorts), and gold plated health care plans.
Some also take advantage of tax loopholes that let them park some of their earnings in offshore tax havens like the Bahamas or the Netherlands Antilles.
And other loopholes that allow them to treat some income as capital gains - subject to a much lower tax rate than ordinary income. If you happen to be a hedge-fund or private-equity manager, there's a capital gains loophole designed especially for you.
Consider the Social Security payroll tax and the situation is even more lopsided. That tax applies to every dollar of income up to a cap -- which this year is $117,000. Anything earned above the cap is not subject to Social Security taxes at all - meaning anyone with a high income pays a much smaller percentage of it in Social Security taxes than most people do.
Put these all together and you see why Warren Buffet, the second richest person in America, pays a lower tax rate than his secretary, as he readily admits.
State and local taxes are even more regressive. The poorest fifth of Americans pay an average state and local tax rate of over 11 percent, while the richest fifth pay only 5.6 percent.This isn't small change. State and local taxes account for about 40 percent of all government revenues.
Believe it or not, Republicans want to make all this worse by cutting taxes on the wealthy even more. Paul Ryan's new budget doesn't just slice Medicare, education, and food stamps. It also lowers the top federal tax rate to 25 percent.
When the rich are let off the hook in all these ways, the rest of America has to pay more in taxes to make up the difference - or have services cut because government doesn't have the funds.
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