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Tax the rich has become a popular political mantra. It’s an ancient political strategy that leverages a popular villain to gain the masses support. And it’s further fueled by a repetitive soundbite we hear over and over – that billionaires pay less in taxes than their secretaries. Or that specific ultra-wealthy individuals paid no taxes in a given year. So what is the financial reality? How much do the rich pay in taxes? And is it actually less than other Americans? Let’s dive in to answer this question – the latest in my Financial Fact or Fiction series, based on the questions YOU submit!
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Super, super analysis. Great job. Only 2 other comments. First is the statement that capital gains taxes are lower to encourage investment because it creates jobs. None of the money that changes hand through trading stocks on the exchange goes to the companies for investment and job creation except during the IPO. Secondly you focused on the last 20 maybe 30 years when looking at trends but when the biggest change occurred is in the 80s when taxes were cut the most and fewer brackets and wages began stagnating. Deregulation started plus the push to privatize government functions to for profit companies. The fact that someone making the median income would have to 10 years to make what the minimum 1 percenter makes in a year is a problem and also the fact that a minimum 1 percent would have to work more than 30 years to make what a 0.1 percenter makes is also a problem. Yes the rich pay a slightly higher percentage but the difference in percentage is nowhere near the difference in income.
What rate is fair then?
Do you also find it problematic that we are rapidly reaching the point where a majority pay close to nothing and can conceivably vote themselves into more and more tax benefits at the expense of a smaller and smaller minority? As that happens, where is the incentive for the taxed minority to generate ANY income?
Thanks for making this info so easy to understand! I’ve never been a fan of media talking points, but more and more I realize how problematic they are. As long as the message conveyed is “the wealthy are not paying their fair share” then real education and effective solutions still doesn’t get addressed.
I agree. You have to begin from a basis of truth and facts before you can start negotiating solutions.
Fundamentally, I truly believe everyone wants what is best for the country – opposing politics just have very divergent views of the best way to accomplish it.
I am not an expert by any means but I read article recently about how the very rich (wealth not income) can borrow at low interest rates against their own investments. So they aren’t having to pay any taxes on that money because they haven’t sold their investments but they can use that money at a lower rate than their investments are earning. That is an absolute advantage for the rich that others don’t have. It gives them disposable cash that the rest of us don’t have. Not sure how this fits in with what you are saying but it is a way that they benefit from their wealth without having to pay taxes on it. Thoughts?
This has become a very loud talking point as of late. And yes, people can borrow against their assets – any assets, from stock holdings to hard assets like real estate – to monetize them without actually selling them and realizing taxable gains. But guess what – so can anyone.
Ever taken out a home equity loan or refinanced your home and taken cash out? You didn’t sell it or incur any taxes, but it gives you disposable cash too. It’s the exact same thing. It’s not an advantage exclusive to the rich – it’s exclusive to anyone who owns assets, including every homeowner in America. If I’m a business owner, and I want to expand and build a new facility – I can buy a piece of land, and borrow against that asset to have cash to build the facility – should those proceeds be taxed too? People and businesses borrow against assets to generate cash all the time.
If this is truly a sizeable potential stream of tax revenue, then tax this activity specifically. And set the rules around when it is taxed. Address tax loopholes, and quantify the benefits, instead of acting like the rich pay no taxes.