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With Shutdown Averted, Wealthy Citizens Call for Higher Taxes on Themselves as Part of Long-Term Solution: Urge Return to Higher Tax Rates on Capital Gains and Dividend Income
BOSTON - April 11 - Now that the government shutdown has been averted, a surprising group of wealthy taxpayers are stepping up to the plate to be a part of the long-term solution. Today Responsible Wealth and United for a Fair Economy launched the "Tax Wealth Like Work" campaign to focus attention on the discrepancies in the U.S. tax system that reward income from wealth over income from work. Income from capital gains and dividend income – a type of investment income from stocks, real estate, and other holdings – is taxed at a top marginal rate of only 15 percent. Income earned from work, on the other hand, has a top rate of 35 percent.
With Congress and cash-strapped states struggle to balance budgets, high net worth individuals are urging that income from their stocks and investment portfolios be taxed at the same rate as income that others earn from work. Mike Lapham, director of the Responsible Worth network, notes that, “restoring the capital gains and dividend tax rate to the same rate that wages and salaries are taxed would raise $84 billion. That would easily cover the federal budget cuts being hammered out this week, with funds left over to help cash-strapped states.”
Taxing income from wealth at the same rate as income from work is not new and has support from across the political spectrum. Capital gains and dividends were taxed at the same rate as income from work as recently as the late 1980s under Presidents Reagan and Bush. Restoring tax parity between the two types of income was one of the recommendations of the 2010 U.S. Deficit Commission report. The Congressional Progressive Caucus included it in their framework for an emerging “People’s Budget” circulated last week.
Capital gains and dividend income is heavily concentrated at the top of the income spectrum. A typical household with $58,000 in income receives only 0.5 percent of its income from capital gains. By comparison, the top 0.01 percent of households, who earn an average of $35 million, typically receive more than 44 percent of their income from capital gains. Adding dividends pushes it well over 50 percent. This distribution of capital gains and dividends, coupled with the much lower tax rate, upends what would otherwise be a progressive tax system.
The "Tax Wealth Like Work" campaign provides website visitors with an interactive tax calculator that estimates the tax savings individuals and families receive from the special treatment of capital gains and dividend income, along with their savings from the income tax cuts enacted under President Bush in 2001 and 2003. After calculating their savings, participants are encouraged to take the Tax Fairness Pledge and commit to giving all or a portion of their savings away to groups working to promote greater fairness in our economy, including ending the special treatment of capital gains and dividends.
The website also includes video testimonials plotted on an income graph, ranging from high wealth taxpayers to those on the lowest end of the income spectrum. Pledge signer Eric Schoenberg says that, “I know full well how our tax system is tilted to benefit Americans who live off of accumulated capital rather than labor income. The vast majority of my income comes from my investment portfolio. Last year my income was just over $200,000 and my taxes were only $2,000--a mere one percent! Somebody making that in salary would have paid at least $30,000 more. Equalizing the tax rates paid by rich investors like me and working Americans would be an excellent start.”
Seattle-based Judy Pigott, one of the heirs to her grandfather’s company that builds Peterbilt trucks and other heavy equipment, was one of the first people to sign the Pledge. “If we even kept what was in place from the end of the Reagan years and into those of Bush I, I suspect we’d not be in a budget crisis now. Let’s do what it takes to support all of us, since it takes all of us to keep this nation going.”
Eric and Judy are among the 700 business leaders and people in the top 5 percent of wealth and income who make up the Responsible Wealth network. As part of their efforts to end tax breaks for the rich, they are taking the Tax Fairness Pledge--and are calling for other wealthy Americans to join them--to direct their tax savings to organizations that support tax fairness for all Americans.
The Tax Wealth Like Work campaign will be building support for legislative proposals, including the Fairness in Taxation Act (H.R. 1124), which moves toward ending the special tax break for income earned from wealth. The Fairness in Taxation Act would tax capital gains and dividend income as ordinary income for taxpayers with income over $1 million, and create higher income tax brackets for millionaires and billionaires. If enacted in 2011, the Fairness in Taxation Act would raise more than $78 billion. The campaign will closely follow President Obama’s upcoming budget statement scheduled for this Wednesday, as well as a possible proposal from the Congressional Progressive Caucus later this week.
Brian Miller, executive director of United for a Fair Economy, adds, “Instead of ending expensive tax breaks for the wealthy that undermine our tax system, Rep. Paul Ryan and his allies are trying to balance the budget on the backs of seniors and struggling Americans. It doesn't have to be this way. By ending the preferential treatment of capital gains and dividends, we can avoid these unnecessary cuts while adding fairness to our tax code. We’re glad to be joined by Responsible Wealth members today in a cross-class alliance to end this unfair tax break."
To arrange interviews with the individuals quoted above and other Pledge signers, please contact Mazher Ali or Sue Dorfman at the numbers listed above.