Should someone who makes $400,000 a year pay the same effective tax rate as someone who makes $40 million a year? In a recent CNBC spot, two analysts took up the debate, which has taken on a new urgency as lawmakers and pundits ponder the Bush tax cuts and the mounting Federal deficit.
The increasingly prominent debate highlights a contentious fact about America's tax system: it doesn't distinguish between the rich and the super-rich.
Currently, the U.S. tax system sets the minimum annual income of the highest tax bracket at $375,000, with a tax rate of 35 percent. The second-highest bracket starts at $172,000 for individuals, who pay 33 percent. "This means that someone making $200,000 a year and someone making $200 million a year pay at similar tax rates. LeBron James and LeBron James's dentist: same difference," New Yorker columnist James Surowiecki recently observed.
In the CNBC spot, Michael Linden, an expert at the progressive think-tank the Center for American Progress, argued the U.S. should add income tax brackets for those making $1 million, $5 million and over $10 million a year. While Daniel Mitchell, a fellow at the conservative think tank the Cato Institute, said the super rich should pay the same tax rate as the moderately rich, the middle class, even the poor. (Scroll down for the video)
In a recent New York Post article, Mitchell argues that separate tax brackets for the super-rich will penalize investors and entrepreneurs and "slow the economy," creating "genuine hardship for the working class and poor." Arthur Laffer, a former Reagan administration economist, similarly claims in a WSJ op-ed that higher tax rates for the rich will create more poverty.
Mitchell and Laffer's trickle-down notion sides with the super-rich at a time when debate over the tax code's role in the economic recovery has become particularly heated. In a New York Times op-ed last week, Paul Krugman warned that full extension of all the Bush tax cuts would cost the government $680 billion in revenue over the next 10 years, based on measurements by the nonpartisan Tax Policy Center.
Krugman adds that the center estimates that "the majority of the [Bush] tax cuts would go to the richest one-tenth of 1 percent." This just so happens to be, as Surowiecki noted, the same echelon of super-rich who saw their share of national income triple between 2002 and 2007.
Watch the debate between Linden and Mitchell below: