Taxing the Super Rich

[LivingAlmostLarge]

Once past a certain point it doesn't matter how much money you have. And if you read the census 10% of the US earns above $100k, but like 1% of the US earn above $300k. So you have the majority of the US under $300k. And those above $100k pay the highest percentage in taxes.

If you want to pay by percentage, that is a flat tax, and that would clearly punish the poor.

Because of the graduated income tax system the countyr has the rich will be a lower percentage than the working class, but 35% of 100k (35000) is much less than 15% of 1,000,000 ($150,000).

So even if the really rich pay a lower percentage, their overall tax bill is around 3-5X as much as the working class.

So... You criticize the flat tax as punishing the poor, but yet you're fine with a regressive tax? Makes sense to me...

[jIM_Ohio]

So... You criticize the flat tax as punishing the poor, but yet you're fine with a regressive tax? Makes sense to me...

I was not criticizing... as I would be in favor of a flat tax (it would save me money). I am also in favor of our current tax system. If lawmakers choose to raise rates, those would be the people I would criticize.

The USA has a progressive tax- each dollar you earn is progressively taxed at a higher rate.

Key words are "additional" and "earned".

Not sure what a regressive tax is... but no system will be considered 100% fair to 100% of the people.

flat tax punished the people which make the least amount of money
tax cuts though would also help those which make the least

progressive tax system will benefit the rich in many respects, and allow the working poor to not pay as much in taxes.
tax cuts in a progressive system are generally biased towards the rich (because they are paying more in taxes to begin with).

I see. I think you still may be missing Warren Buffet's point in the original post. Even though we supposedly have a progressive tax system, the ultra rich pay less (percentage-wise) than most other taxpayers. This makes at least part of the tax system regressive (the opposite of progressive). I agree with Buffet that that doesn't make sense.

[LivingAlmostLarge]

Nope, it's just that the highest wage earners pay less than the middle income/well paid, but not top 1% wage earners pay more than them.

Mainly because they have less deductions/loopholes.

[jIM_Ohio]

I see. I think you still may be missing Warren Buffet's point in the original post. Even though we supposedly have a progressive tax system, the ultra rich pay less (percentage-wise) than most other taxpayers. This makes at least part of the tax system regressive (the opposite of progressive). I agree with Buffet that that doesn't make sense.

in order to pay a lower pecentage of income, you need a really high income. The highest US marginal bracket (married filing jointly) is

Reference Room
349,700 94,601.00 35% 349,700

Meaning everyone making $349,700 is paying $94,601 in taxes. This tax rate is 27.1%. Any dollar earned over 349,700 is taxed at 35%.

So if a person earned $350,000 their tax is 94601+.35*(350000-349700)=94706 (27.1%).

If a person earned $450,000 their tax is 94601+.35*(450000-349700)=129706 (28%).

If a person earned $750,000 their tax is 94601+.35*(750000-349700)=234706 (31.2%).

The point of this is to show that the average tax rate a person pays in theory goes up with income.

Deductions work the opposite way. The person with the higher bracket (35%) will save more on the mortgage interest deduction, for example.

If I borrow $400,000 for a home, and pay $24,000 in mortgage interest the first year. Assume 6% interest on the loan

A person in 15% income tax bracket will have an effective interest rate of (1-.15)*6%=5.1%. Instead of paying $24,000 in interest, they paid $20,400 in interest (saved $3600).

A person in the 25% income bracket will have an effective interest rate of
(1-.25)*6%=4.5%. Instead of paying $24,000 in interest, they paid $18,000 in interest (saved $6000).

A person in the 28% income bracket will have an effective interest rate of (1-.28)*6%=4.32%. Instead of paying $24,000 in interest, they paid $17200. Saved nearly $7000.

A person in 35% income bracket will have an effective interest rate of (1-.35)*6%=3.9%. Instead of paying $24,000 in interest, they paid $15,600. They saved close to $9000.

The rich people use the same deductions you and I use. Because their income is taxed so high, they get a larger reduction, which then reduces their overall tax percentage. The more you make, the bigger the deduction.

[Scanner]

JimOhio,

I can tell you are Conservative by the theme of your posts.

However, what you preach flies in the face of Clintonian economics.

Bill Clinton raised taxes on the rich.

And ohhhhhh, the whining we had. The rich won't create jobs. They won't be leaders. They won't go to work anymore. They won't buy boats and other luxury items. Ohhhhhhhh. . .we will have a recession.

The Chicken Little Conservatives had a hey-dey.

Unfortunately, much to the Neo-conservatives and Conservative dismay. . .our country had record economic expansion.

The rich tax worked, along with cutting spending, into bringing our budget into balance. Apparently, they still created jobs and went to work and bought boats.

Now. . .some of that was illusionary economic growth (dot.com explosion), but a lot of it was real economic expansion.

Trust me. . .there's a lot more out there than Rush Limbaugh and O'Reilly philosophy.

[Aleta]

I am one that when the tax cuts took effect, that my taxes definitely went down. Under Clinton, I was middle class, so what happened to people like me? We aren't rich.

[jIM_Ohio]

JimOhio,

I can tell you are Conservative by the theme of your posts.

However, what you preach flies in the face of Clintonian economics.

Bill Clinton raised taxes on the rich.

And ohhhhhh, the whining we had. The rich won't create jobs. They won't be leaders. They won't go to work anymore. They won't buy boats and other luxury items. Ohhhhhhhh. . .we will have a recession.

The Chicken Little Conservatives had a hey-dey.

Unfortunately, much to the Neo-conservatives and Conservative dismay. . .our country had record economic expansion.

The rich tax worked, along with cutting spending, into bringing our budget into balance. Apparently, they still created jobs and went to work and bought boats.

Now. . .some of that was illusionary economic growth (dot.com explosion), but a lot of it was real economic expansion.

Trust me. . .there's a lot more out there than Rush Limbaugh and O'Reilly philosophy.

I have two theories about Clinton's presidency

1) balanced budget stimulated economy
2) the Reagan policies put in place 5-10 years before started to take full effect

that being said, the only reason I voted for Bush was because he said he would reduce taxes. If I would have known about the rest, I might have reconsidered.

I'd consider voting for Edwards if he ran... I am beginning to see there is more to life than taxes.

[Scanner]

I actually voted for Perot twice as I think he was the catalyst to balance the budget.

[jIM_Ohio]

I voted for Perot twice as well (never voted for Clinton).

I would vote for him a third time if he ran again.

in order to pay a lower pecentage of income,

Thanks for the econ lesson, but you still missed the point. The Bill Gateses, the Warren Buffets, the billionaire hedge fund managers, the ultra-elite... they pay a lower tax rate than the rest of us do. They don't bother with the piddly tax deductions we mortals use. They work under a different system.

[jIM_Ohio]

Thanks for the econ lesson, but you still missed the point. The Bill Gateses, the Warren Buffets, the billionaire hedge fund managers, the ultra-elite... they pay a lower tax rate than the rest of us do. They don't bother with the piddly tax deductions we mortals use. They work under a different system.

I do not mean to patronize or demean by stating what others already know... I am doing that to find common ground for a good discussion on tax theory... so onto the next issue.

Earned income (as pointed out earlier) increases one's overall tax burden as a percentage of earned income.

I do not agree with statement

"They don't bother with the piddly tax deductions we mortals use. They work under a different system"

.

They are in the same system, they have more income- not earned income, but income (as in AGI).

This is from captial gains, dividends and interest- which is taxed at much lower rates than earned income. This is still true for you and me. The difference is Bill Gates is paying 15% and you or I might be paying 10% or 5% of a much smaller gain.

I am not sure what cutoff is for capital gains... but I think people in lowest tax bracket pay 5%, next lowest pay 10% and everyone else pays 15%. You need to consider that many executives are compensated with stock options, which are taxed at these lower rates if excercised properly. But there are rules as to when these options can be cashed in... meaning the compensation is not liquid in all cases.

So earned income for people like this might be similar to you or me...
but overall income from these other assets is much, much higher.

You and I can take advantage of same lower tax rates by investing in taxable accounts and letting money compound. Part of my retirement strategy depends on this very principle.

It goes beyond that. There are tax shelters that we mortals don't have access to. These are very complicated arrangements using corporations, overseas subsidiaries, trusts, transfer pricing, all kinds of good stuff.

(Granted, these guys have to pay a lot in lawyer and accountant fees to set up and maintain these tax shelters, but who's counting...)

[jIM_Ohio]

you and me are eligible for those tax shelters as well. Keep in mind many of these shelters RAISE taxes.

For example if invested in mutual fund X, the highest tax rates would be 15% long term gains, 15% qualfied dividends. Could be 5% and 5% for people in the bottom tax bracket and 10%/10% for people in relatively low tax brackets.

If they use a whole life insurance product or annuity product and invest in the same mutual fund X, the tax rates on withdraw are at ordinary income rates (31%, 35%...) plus state taxes. The actual tax rate went up (doubled) at time of withdraw. I have a whole life insurance policy with a sub account indexed to S&P 500. The gains are sheltered from taxes, but withdraws will be taxed at my highest tax bracket, which is nearly 28% (we are at top of 25% bracket right now). Higher expenses yadda yadda... this was done for insurance reasons, and it part of estate planning more than investment planning.

It is not a penalty to make more money... and to suggest the people which make more money need to pay a higher percentage of taxes than they already do is absurd.

Something like the top 10% of wage earners pay 52% of the taxes already. To suggest they pay more seems unfair to me.

20% of 60,000 is $12,000
15% of 1,000,000 is $150,000

even if the rich pay a lower percentage, they are paying it on a much, much higher principal amount than the "working class". The percentage might seam unfair, but the overall amount they are paying is orders of magnitude higher.