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The Myth of “Tax Cuts For Billionaires”
The US income tax system is still a progressive tax system, where those with the most income pay not only the most taxes but also the highest tax rates.
I went to the IRS website (You can Google IRS TAX STATS) and found the breakdowns for income taxes paid for several years. Let’s look at 2020, Trump’s last full year in office…
The richest Americans — those with incomes over 2 million dollars in 2020 — paid an effective tax rate of 26.68%.
The middle class — those with incomes between 75,000 and 200,000 dollars — paid an effective tax rate of 10.12%.
The poorest — those with incomes less than 25,000 dollars — paid an effective rate of 1.04%.
How does this compare to, say, Obama’s last year? Let’s look at 2016…
The poorest Americans paid an effective tax rate of 1.7%. Between 2016 & 2020, their effective tax rate went down by almost half, from 1.7% to 1%.
The middle class paid an effective rate of 11.69% in 2016. Their taxes also went down, but not nearly by almost half. They went from an effective tax rate of 11.69% in 2016 to 10.01% in 2020.
And the richest? They got a break too. But a tiny one. Their effective tax rate went from a rate of 27.0% to 26.67%.
Published in General
But can they deduct real estate investments?
Do congress members ever get audited by the irs? Especially when in office?
This is very interesting. I hope I can find out from the IRS website how they calculate “Effective Tax Rate.”
I would either do away with the income tax and implement a flat VAT, or go to a flat income tax of 10% from dollar one with no deductions. God only asks for 10% – why should the government get more than God?. For capital gains, I would index the basis for inflation ( gains from inflation aren’t actual gains ), but otherwise tax capital gains at 10% also.
If everyone paid at the same rate, there would less incentive to raise taxes on your neighbor, because it would also raise taxes on YOU.
If the tax payments were less hidden, more visible, people would be more loath to raise taxes, and possibly less willing to waste money.
I decided to ask Google how it’s calculated, in the hope that it would refer me to the IRS web site. Instead it told me:
The kicker is that phrase, “taxable income.” I’ll betcha billionaires have a lot more nontaxable income than I do. The interest from municipal bonds is not usually counted as taxable income on federal tax returns. Google tells me that lots of people own municipal bonds in some form or other, but that individual investors are the biggest owners. Individual investors would not include people like me whose investments are almost all in the form of 401k accounts and such. I wish the IRS also published data on something called the “Really Effective Tax Rate” in addition to the “Effective Tax Rate.”
It’s simple. Taxes paid divided by adjusted gross income.
They are billionaires. They have lots more of all kinds of income than we do.
True. What is your point? I would tax all of it at 10%. Identifying it and measuring it are a non trivial problem.
Define “adjusted gross income”.
What Constitutes “Gross Income”? What are the “adjustments”?
If own a business with one million dollars in revenue, is the entire million dollars my “gross income”? What about the costs I have to run the business?
The tax rate is the easy part of the income tax system. Defining “income” is the tough part.
Funny that no great mind on the left has ever come up with a formula or fixed criteria to determine that “fair share” rate that the rich never pay.
I recall a brief conversation with former Senate Finance Chair Sen. Packwood standing at an adjacent urinals in which he recounted one of his favorite anecdotes–asking a panel of tax and Treasury officials if under their model a tax rate of 100% would collect 100% of income with no impact on incentives. They admitted the answer was yes.
Despite the best efforts of Stalin, Mao and Gavin Newsome, no one has figured out how to erase human self-interest and make people willingly serve the state even to their own severe detriment.
Although they can’t articulate it,
“Rich” is always “makes/has more money than I do” (see Bernie Sanders’ switch from demonizing “millionaires and billionaires” to “billionaires” after it became clear to the public that Bernie Sanders was a millionaire).
and
“fair share” is always “more” than whatever those “rich” who make/have more money than I do are currently paying.
Interestingly, when the public at large is asked what the maximum income tax rate should be and still be fair, very few cite any number greater than 35 to 40 percent.
That’s one of the weirdest sentences that’s ever appeared on Ricochet.
I’m so sick of attacks on the billionaires. I think the complainers are simply jealous and work hard to demonize them.
It’s alway driven me crazy that most people haven’t the slightest idea what their effective income tax rate is. Of course, payroll taxes distort that to some degree and probably more at lower incomes. But most people believe they pay way more than they actually do.
Last I heard, a flat tax would have to be close to 20% to raise the same amount of total revenue. (“Cut spending!” you say? What, by HALF? Good luck!) And you’d have a lot more complaining about the “rich” not paying “enough.”
Fine, do 20%. Slowly cut the spending and the rate from there.
I suspect you’re too confident in people not resenting that their 20% impacts their life a lot more than the “rich’s” 20%.
Also, for those who think a flat tax would straighten out people who want freebies, I figure it would do the opposite. You would likely have even more people than now, expecting to get at least 50% worth of “benefits” from their 20% tax paid.
Of course, this is only about FEDERAL income tax, too. Add property taxes and sales taxes etc, and I think you could expect torches and pitchforks.
They are taxed on investments, basically, vs. income. If the policy is to encourage investment, you reduce capital gains taxes.
That’s why it’s different. If it’s 10% for incomes or capital gains or any other type of income (gains from the sale of a house, for example), it’s at least consistent.
Which I think would be fair if applied across the board for everyone. A complete revamp and simplification of the tax code. This is really the only administration in my lifetime that I could see actually doing this and completely removing politics, favors, lobbying, etc, that accompanies any proposed changes to the tax code.
We’ve built a rat’s nest of a “code”.
As the programmer’s say -Spaghetti Code.
But that would undo decades of congressional kabuki. (a) Vote to establish high rates and to create untenable regulatory burdens, then (b) rush back to the office and (c) have your AA flip the “open for business” sign for the parade of lobbyists willing to buy specific relief on a retail basis for campaign cash and support.
Anyone who does not come to DC and play is like the loser in musical chairs–left to endure the full burdens of bad law with no exemptions, grandfather clauses, credits, exceptions etc. So everyone is forced to play by that big extortion racket on the Hill. And to add insult to injury, they are then accused of being “special interests” polluting the process, kinda like the way shopkeepers corrupt the mafia with those protection payments. And the code (especially the tax code) is festooned with countless arcane little provisions.
And it is the gift that keeps on giving. Nice little depreciation allowance you got there. It would be a shame if something were to happen to it on account of me losing interest in your issue…
I’m glad you mentioned depreciation allowances.
That look you get when the check is late…
If you tuck in state and local, property taxes, state and local sales taxes, and subsidies paid via your tax dollars to dozens of industries that you pay for in increased prices for anything corn-related, dairy, etc….well, we’re all getting quite screwed.
Yep, that’s pretty much the point – which is why to take away Congressional power to create their own incentives is an extremely difficult thing to do.
Until now, it seems.
My lifetime Federal Income Tax rate [going back to 1978 when I made $1530.72 working at McDonalds, through the 2024 Tax year] figured against “Adjusted Gross Income” is 14.08%. Figured against “Taxable Income” it’s 17.69%.
Neither of these amounts takes into account Federal Payroll Taxes for FICA/Medicare, State Income Tax, State Sales Tax, Local Property Tax, or the myriad and sundry excise taxes included in things like utility bills.
I would love to see a further break down.
Some of the richest of the rich play so many games it is not possible to know how much money they have. Once this sort of billionaire decides to put together a “charity foundation” or two, all bets are off.
Of course if you are a top level money schemer, you evade taxes to a much huger tune than the 50K to 250K that the IRS tries to get out of legitimate business operations.
It is estimated for instance that the Clintons made some 250 million bucks off one of their foundations. But they were amateurs at what they were doing. The people who actually made more monies were some of their associates who donated monies to the charity. (As in “Donate X amount to my Haitian hurricane victim fund and you will be assisted with further US government monies by my wife who is Secretary of State and knows how to ‘get ‘er done’.”)
But the master minds of all of this are two people who are connected – perhaps even were business partners.
One of them is possibly deceased. His name was Jeffrey Epstein. Fed auditors for the US government found some 550 million bucks in some account of his, post humously and could not figure out where it came from. No one has ever figured out what it was he really did as far as a career.
Did Epstein follow the footsteps of Ghislane Maxwell’s dad, Robert Maxwell? That man had succeeded in getting pension funds out of the trust funds that they had been in and handing them over to rich company owners who paid him to do that.
Or did he make his money from blackmailing people? Or sex trafficking? Or all three of those activities?
Bill Gates would have been the perfect business partner for Epstein/Maxwell enterprises. After all, he has through his “charity foundation” GAVI the locations of many of the world’s poorest and most vulnerable children.
His various foundations are often utilized as nothing other than sophisticated tax evasion stunts that allow him to avoid paying taxes on significant funds that he has earned. Then monies from the foundations “donate” to media outlets so that when he needs the favor of having some concept promoted 24/7 as being a necessity, media outlets do just that.
In Aug 2020, The Columbia Review of Journalism ran a significant report on how Gates had “donated” funds to 50 separate “alt media” sites, such as NPR Radio here in the USA and the BBC in the UK. Then just as Gates expected those media outlets kept informing the public of how devastating COVID was and that the one hope for the plague to end would be the introduction of the COV mRNA vaxxes by the end of 2020 and beginning of 2021 .
During the summer of 2020, knowing how successful the media was in convincing most of humanity that the vaccines were a necessity, Gates took some 55 million of his own monies and invested in COV vaccine efforts.
Then two summers later, he sold off the stock and profited by 495 million bucks. Then I imagine he could have put a lot of the profits into another foundation and laid in wait to do this all over again.
Charities as a weaponized form of bringing about massive public propaganda should be banned from existence, but some here would consider it just your average ploy of being part of “the free market.”
Not that you or I could ever manage to do this.
This is an inherent issue with high and/or steeply progressive income tax or wealth tax rates: the high rates created incentives to arrange finances so that the amount of income or wealth subject to those high rates of taxation. Even when the arrangement doesn’t make financial sense except for the taxation issue. And the higher the income or wealth, the greater the incentive to avoid the taxation. And the more the person can justify spending to find ways to avoid the taxation.
Mrs. Tabby worked in public accounting at a small accounting firm before the 1986 tax code changes that drastically reduced U.S. marginal income tax rates. The firm had several wealthy clients who had some very bizarre “investments” and “ancillary business operations” that before factoring in the taxation issue made no sense. Yet the losses due to inefficiencies of those “investments” and “ancillary business operations” were less than the tax savings those “investments” and “ancillary business operations” provided in the tax code. When tax rates were slashed in 1986, those clients closed most of those “investments” and “ancillary business operations” because the incentives to use them had been reduced.
I’m sure it’s not news to you, it’s also true that the higher the tax rates, the greater incentive to avoid taxation. If we lowered the tax rates enough, all the special exemptions and inefficient method of creating non-taxable income would become less relevant, too. So would all the talk about fair taxes (as if there can be such a thing as a fair tax). The lower the tax rates, the less it all matters.
But even at a “flat tax” rate of 10%, or more like something closer to 20%, the amounts involved might justify trying to make some of it appear not to be “income” etc.
Many lobbyists opposed the seminal 1986 tax reform even though it effectively lowered taxes on their clients. Their motives were (a) pride of authorship and sustained (lucrative) defense of special provisions in the code and (b) a belief that the rates would inevitably go back up whenever Democrats got the chance and the increase would hurt more with all the protections removed.
The goal of raising revenue equitably and efficiently is at odds with using the tax code to engineer incentives for other policy goals.
Recall the embarrassment of Sen. George Mitchell who was proud of pushing through a “luxury tax” on the rich only to discover that punishing yacht purchases was an economic blow to his own state where a lot of yachts were made (Maine, no duh, George) as he unsuccessfully scrambled to carve out a quick exemption.
That actually sums up the legislative process. Declare that The Rich and Corporations need to pay their fair share with a big rate and then craft thousands of tailored provisions to keep from killing the golden goose. The middle and upper middle income taxpayers don’t have a trade association or big firm representing them, so they (we) tend to get socked.
The tax code is over 6,000 pages and the regs to implement the code are 70,000 pages. Maybe we ought to rethink this.