http://www.forbes.com/2009/01/29/irs-high-income-personal-finance-taxes_0129_wealthy_americans.html
"WASHINGTON, D.C.--The 400 highest-earning taxpayers in the U.S. reported a record $105 billion in total adjusted gross income in 2006, but they paid just $18 billion in tax, new Internal Revenue Service figures show. That works out to an average federal income tax bite of 17%--the lowest rate paid by the richest 400 during the 15-year period covered by the IRS statistics. The average federal tax bite on the top 400 was 30% in 1995 and 23% in 2002...
... the top 5% of earners--those with an adjusted gross income of $153,542 or more--now pay a higher effective tax rate than the top 400."
Democrats rightly say that the rich don't pay their fair share, while Republicans respond (quite truthfully) that those in the highest income tax brackets pay a confiscatory 35% tax, with Obama suggesting an increase to 39.5%.
However, the billionaires whose wealth comes mainly from capital gains pay much lower taxes than the millionaires who collect a salary for their work. This disparity is not going to get smaller by increasing the income tax. (To be fair, Obama is also advocating an increase in capital gains to 20%.)
Why is it that income from a day's work should be taxed at a higher rate than (largely) unearned investment gains?
I propose that we raise the capital gains tax and lower the top tiers of the income tax so that they are roughly comparable.
Real estate capital gains could be taxed at their current rate, so as not to adversely affect homeowners whose primary residence increases in value. (This is a minor detail that I am open to alternative suggestions.)
Comments (6)
Yea, what a hot idea . . . panelize the industrious individual who saves their money and invests it allowing businesses to have capital to expand and keep the economy moving . . . How do you think that we have gotten to the point where the adverage American saves less than 1% of their income and has less than $26,000 saved for retirement in their IRAs.
What the Government has been saying for over 30 years with the IRA is that Social Security WILL NOT Survive the Baby Boom Generation and go Bank Rupt. What this means is that the Government will be unable to meet the SS "obligations" without Printing more useless currency backed by nothing ie another TARP bailout.
Tax regulations like what you suggest discourages savings.
I propose we lower all taxes and drastically shrink dollars spent on government. It seems the US population at large has a mental block when comes to the notion of downsizing government.
I second that. Cut government spending, including the trillions that The Obama is about to spend. No one, I repeat, NO ONE, is going to be able to pay for all that he will spend.
re: thinktheword
If you want to shrink government, please make a proposal. The size of government is a separate issue. This is why I made a revenue-neutral proposal.
If you think we should reduce taxes on everyone, that is fine, and can be done in a way consistent with my proposal: just drop the income tax more than the capital gains tax.
re: we_spencer
Another quote from the article I linked to: "By contrast, Americans overall reported less than 10% of their adjusted gross income as coming from capital gains." A higher capital gains tax is not likely to affect the middle class much. I believe IRAs are treated as regular income rather than capital gains, so they wouldn't be affected.
re: we_spencer
Don't think of this proposal as discouraging savings, think of it as encouraging work.
Actually, I'd prefer that our tax policy neither encourage nor discourage any activity. The tax policy of encouraging home ownership certainly didn't work well; I thought of it as a policy encouraging one to buy a home, but to not actually own it.
Capital gains taxes are those taxes that are levied upon shareholders gains from investments held for duration longer than one year. With the present lower capital gains tax of fifteen percent; shareholders can realize more of the revenue of their investments, thus lower capital gains taxes promotes stockholders votes for dividends/profit taking. With higher capital gains taxes; shareholders generally vote for more capital improvements or investments by their companies. This promotes a stronger business format for growth, thus improving the assessed value or worth of a stock in the long run. Capital improvements also mean job creation, wage growth, and increasing stock value via consumer confidence and industry consolidations or expansions. Simply put, higher capital gains taxes force business and corporations to expend money on growth, while lower capital gains forces business to look for the quick buck to give to shareholders. Capital gains must be raised back to pre 1996 levels of 28% on long term capital gains, but the current low capital gain rates should remain for those who are in the 10% and 15% income tax brackets