Super Rich Taxes Drop Dramatically; Does Nearly Half of U.S. Households Pay No Taxes at All?

Tax Rates Down Dramatically for the Super Wealthy

April 18, 2011

The Atlantic Wire - Happy Tax Day! With an odd element of fanfare, the Associated Press wants you to know one thing about America's tax code: it's broken and everybody knows it. In all, the Tax Policy Center estimates that 45 percent of U.S. households will not pay any federal income tax this year.

"The vast majority of those who escape federal income taxes," writes the AP, "have low and medium incomes, and most of them pay other taxes, including Social Security and Medicare taxes, property taxes and retail sales taxes."

But much of the AP's focus is on the few wealthiest Americans, who because of numerous loopholes in the tax code rarely end up paying the oft-quote top tax rate of 35 percent. The AP quotes one Columbia Business School professor who manages to pay only 1 percent of his six-figure income to the federal government. On average, the wealthiest Americans pay only 17 percent of their income in taxes, a dramatic decline from the 26 percent they paid in 1992.

In his speech last week, President Obama vowed to limit tax breaks, especially those for the wealthy. It's bound to be a political challenge as some of these breaks affect low and middle-income Americans, 45 percent of whom pay no federal income tax whatsoever. But The Daily Beast's John Avalon thinks the president stands to gain ground in the tax battle with a quick fix. Rather than compare Warren Buffett's income with those on the bottom rungs of the top tax bracket--an income of roughly $125,000 a year--Avalon thinks we should get reasonable about taxing the ultra rich:

A smarter option would be to recognize the increasing wealth disparity in America and adjust the top rate accordingly—raising it to $500,000 or even $1 million per year per household. This would match the Democrats’ “millionaires” rhetoric with reality. It would also be politically impossible for Republicans to oppose at a time when we need to pay down our deficit and our debt.

Along these lines, Treasury Secretary Tim Geithner let America know yesterday that we'd have to raise the debt limit. Geithner agrees that tax reform needs to be focused on closing loopholes for the wealthy in order to make a dent in the deficit. He told Christiane Amanpour:

Those benefits, even like the mortgage interest deduction that lets people have two homes, pretty expensive homes … if you target them on the most fortunate Americans, they can afford to take a little bit larger share of the burden. They can afford to do that, and it's the responsible thing to do for the economy.

Not that any of this news makes you more excited to pay your taxes today.

Super Rich See Federal Taxes Drop Dramatically

April 17, 2011

AP - As Monday's tax filing deadline nears, ponder this: The super rich pay a lot less taxes than they did a couple of decades ago, and nearly half of U.S. households pay no income taxes at all.

The Internal Revenue Service tracks the tax returns with the 400 highest adjusted gross incomes each year. The average income on those returns in 2007, the latest year for IRS data, was nearly $345 million. Their average federal income tax rate was 17 percent, down from 26 percent in 1992.

Over the same period, the average federal income tax rate for all taxpayers declined to 9.3 percent from 9.9 percent.

The top income tax rate is 35 percent, so how can people who make so much pay so little in taxes? The nation's tax laws are packed with breaks for people at every income level. There are breaks for having children, paying a mortgage, going to college, and even for paying other taxes. Plus, the top rate on capital gains is only 15 percent.

There are so many breaks that 45 percent of U.S. households will pay no federal income tax for 2010, according to estimates by the Tax Policy Center, a Washington think tank.

The sheer volume of credits, deductions and exemptions has both Democrats and Republicans calling for tax laws to be overhauled. House Republicans want to eliminate breaks to pay for lower overall rates, reducing the top tax rate from 35 percent to 25 percent. Republicans oppose raising taxes, but they argue that a more efficient tax code would increase economic activity, generating additional tax revenue.

President Barack Obama said last week he wants to do away with tax breaks to lower the rates and to reduce government borrowing.

In all, the tax code is filled with a total of $1.1 trillion in credits, deductions and exemptions, an average of about $8,000 per taxpayer, according to an analysis by the National Taxpayer Advocate, an independent watchdog within the IRS.

The Plundering of America (Excerpt)

March 7, 2010

Jeff Nielson - ...In several previous commentaries, I have criticized our system of income taxation as being fatally flawed. The primary flaw is that for the people at the top of the economic pyramid, income is usually only a tiny component of their increasing wealth. Generally, the vast majority of new wealth for the ultra-wealthy comes from the appreciation of assets, which are never (and can never) be taxed by an income-based system of taxation.

The ultimate result of an income-tax system is that wealth is relentlessly transferred out of the hands of the poor and middle class -- and into the hands of the ultra-wealthy. I have previously illustrated the net result of decades of income taxation in the United States, through some horrifying demographic data.

The top 20% of wealthiest Americans hold an obscene 85% of all wealth. Put another way, the “little people” who comprise the bottom 80% of U.S. society hold only a pitiful 15% of U.S. wealth -- the most lop-sided wealth distribution among all Western societies. However, while that data is bad enough, it gets much worse when we focus upon the top 1% of wealthiest Americans. These pseudo-aristocrats hold 35% of all wealth and 56% of all stocks held by Americans.

Put another way, as the Wall Street Oligarchs crow about the “amazing rally” in U.S. equity markets, 56 cents of every dollar of profit goes to just 1% of Americans. Meanwhile, the “little people,” the 80% of Americans on the bottom hold less than 15% of all stocks -- meaning that this Wall Street-manufactured “rally” is doing nothing to alleviate the economic suffering of the vast majority of Americans.

However, some new, economic data out of the U.S. has left me completely flabbergasted. While I was well aware of the Bush-era tax hand-outs to the wealthy, I did not truly understand the magnitude of that windfall. The numbers are totally shocking.

In 1995, during the Clinton-era, the top-400 wealthiest Americans 'earned' an average of $50/million per year in income, while paying an effective tax rate of 30% on those earnings. In 2007, a mere 12 years later, the effective tax rate for the “400” had fallen by 45%, thanks to the Bush hand-outs.

What is even more shocking (and despicable), however, was the rise in incomes of the “400.” In just 12 years, their average incomes rose from $50 million/year to $345 million/year -- a nearly 700% rise in incomes in just 12 years, or an average wage-hike of well over 50% per year. What makes this all the more despicable is that during this same period of time, the U.S. government (and Canada's government, as well) have been doing everything in their power to prevent the “little people” from getting any wage increases, at all.

In aggregate terms, this unequivocal decision to “take from the poor to give to the rich” has produced a wealth schism which literally has not been seen in our societies in over 70 years...

Many Americans Pay No Federal Income Tax; Earnings, Credits Eliminate Liability (Excerpt)

April 8, 2010

Associated Press - ...Tax cuts enacted in the past decade have been generous to wealthy taxpayers, making them a target for President Barack Obama and Congressional Democrats. Less noticed were tax cuts for low- and middle-income families, which were expanded when Obama signed the massive economic recovery package last year.

The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners -- households making an average of $366,400 in 2006 -- paid about 73 percent of the income taxes collected by the federal government.

The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment.

"We have 50 percent of people who are getting something for nothing," said Curtis Dubay, senior tax policy analyst at the Heritage Foundation.

The vast majority of people who escape federal income taxes still pay other taxes, including federal payroll taxes that fund Social Security and Medicare, as well as excise taxes on gasoline, aviation, alcohol and cigarettes. Many also pay state or local taxes on sales, income and property.

That helps explain the country's aversion to taxes, said Clint Stretch, a tax policy expert Deloitte Tax. He said many people simply look at the difference between their gross pay and their take-home pay and blame the government for the disparity.
The federal income tax is the government's largest source of revenue, raising more than $900 billion -- or a little less than half of all government receipts -- in the budget year that ended last Sept. 30.

But with deductions and credits, especially for families with children, there have long been people who don't pay it, mainly lower-income families.

The number of households that don't pay federal income taxes increased substantially in 2008, when the poor economy reduced incomes and Congress cut taxes in an attempt to help recovery.

In 2007, about 38 percent of households paid no federal income tax, a figure that jumped to 49 percent in 2008, according to estimates by the Tax Policy Center.

Income tax rates were lowered at every income level, making it relatively easy for families of four making $50,000 to eliminate their income tax liability.

60 Percent of the Population Now Gets More in Government Benefits Than It Pays in Taxes

F.A. Hayek, an Austrian economist living in Britain, wrote "The Road to Serfdom" in 1944 as a warning that central economic planning would extinguish freedom. The book was a hit. Reader's Digest produced a condensed version that sold 5 million copies. Hayek meant that governments can't plan economies without planning people's lives. After all, an economy is just individuals engaging in exchanges. The scientific-sounding language of President Obama's economic planning hides the fact that people must shelve their own plans in favor of government's single plan... Arthur Brooks, who heads the American Enterprise Institute, says statism is becoming the "central organizing power in our economy," and that the battle between free enterprise and statism will shape our futures. He remains optimistic because a recent poll showed that 70 percent of Americans want free enterprise. - John Stossel, Do We Want a Culture of Takers or Makers?, February 10, 2010

February 10, 2010

John Stossel - Government is taking us a long way down the Road to Serfdom. That doesn't just mean that more of us must work for the government. It means that we are changing from independent, self-responsible people into a submissive flock. The welfare state kills the creative spirit.

F.A. Hayek, an Austrian economist living in Britain, wrote "The Road to Serfdom" in 1944 as a warning that central economic planning would extinguish freedom. The book was a hit. Reader's Digest produced a condensed version that sold 5 million copies.

Hayek meant that governments can't plan economies without planning people's lives. After all, an economy is just individuals engaging in exchanges. The scientific-sounding language of President Obama's economic planning hides the fact that people must shelve their own plans in favor of government's single plan.

At the beginning of "The Road to Serfdom" Hayek acknowledges that mere material wealth is not all that's at stake when the government controls our lives:

"The most important change ... is a psychological change, an alteration in the character of the people."

Statism's illogic exposed for all to see in F.A. Hayek's "The Fatal Conceit: The Errors of Socialism"

This shouldn't be controversial. If government relieves us of the responsibility of living by bailing us out, character will atrophy. The welfare state, however good its intentions of creating material equality, can't help but make us dependent. That changes the psychology of society.

According to the Tax Foundation, 60 percent of the population now gets more in government benefits than it pays in taxes. What does it say about a society in which more than half the people live at the expense of the rest? Worse, the dependent class is growing. The 60 percent will soon be 70 percent.

Rep. Paul Ryan of Wisconsin seems to understand the threat:

He's worries that "more people have a stake in the welfare state than in free enterprise. This is a road that Hayek perfectly described as 'the road to serfdom'" ...

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