In 2009, the median U.S. family had an income of just under $50,000, on which they would have paid roughly $2,761 (or about 5.5%) in federal income tax. I, by contrast, enjoyed an income of $207,415 in 2009, but paid only $2,173 (or 1.0%) in income tax.
In a recent newspaper interview, I mentioned my absurdly low tax rate to illustrate the extent to which the tax system is biased in favor of the wealthy (my income varies widely from year to year, but is typically north of half a million dollars). My point was that with our country facing frightening budget deficits amid an ever-widening income gap between the rich and everybody else, I consider it both unwise and unfair that a former investment banker like myself pays less in taxes than working Americans with far lower incomes.
Among the dozens of emails I received in response were many from people who assumed that rich people avoid taxes through complicated strategies devised by an army of expensive advisors (many correspondents asked for the name of my accountant). But under our current tax system, the rich don't need high-priced lawyers who exploit obscure loopholes; I wasn't even trying to minimize my taxes (and, in fact, could have paid zero tax if I was). Warren Buffett has observed that if there's class warfare in this country, the rich are winning. I offer my 2009 tax return, then, as a flare to illuminate the battlefield.
Americans are understandably angry over the government's multi-billion-dollar bailouts of reckless bankers. But low tax rates on investment income have put far more money into Wall Street's pockets than the TARP bill did. Even President Obama's proposal to let the Bush tax cuts lapse for the richest Americans would leave a top marginal rate on capital gains and qualified dividends of just 20% -- half the proposed rate on labor income.
This difference creates a loophole you can drive a Rolls Royce through. Having left Wall Street in 2002, I now earn far more money from my financial portfolio than from my job as an Adjunct Professor, and as a result I consistently pay under 15% of my income to the IRS. Still, I was astonished when my accountant told me that my tax rate for 2009 was a mere 1%.
I knew my deductions were an unusually large percentage of my income that year due to three items: $46,000 in charitable gifts, $56,000 in state and local taxes (mostly related to 2008, when my income was much higher) and $45,000 in investment expenses (basically fees paid to various money managers). Personally, I think there are reasonable arguments to be made for keeping each of these types of deduction, but the numerous "tax expenditures" that litter the tax code mean that citizens with similar incomes can end up paying wildly different amounts in tax.
Even after deductions and exemptions, however, I still had taxable income of $37,349, putting me in the 15% bracket (higher than the average rate I've paid in years past with income twenty times as large). If I'd been an ordinary worker, my tax bill would have been $4,764. But wait! Under the Bush tax cuts, if one's income from other sources is low enough (which mine was after deductions), certain types of investment income are subject to zero -- yes, zero -- tax. In my case, the qualified dividends I received in 2009 would have escaped taxation altogether if not for the Alternative Minimum Tax. Even under the AMT, however, I paid less than half the income tax paid by a wage-earner with the same taxable income (and less than a third of the tax burden when including social security taxes, which are not due on investment income).
Does that seem fair to you?
Advocates of lower taxes on investment income argue that they increase the incentives for folks like me to create jobs. As a long time investor, I'm skeptical. After all, job growth was much higher in the years following the Clinton tax hike in 1993 than it has been over the last decade as investment tax rates were repeatedly slashed. And lower rates on investment income also reward financial speculators, whose actions in recent years haven't exactly promoted increased employment.
Middle class anger in the Tea Party era, meanwhile, has been directed primarily at government spending. Arguing that government will simply waste whatever money it receives, Tea Party supporters oppose higher taxes on anybody (which explains why this is one populist movement which many billionaires are happy to support). But by focusing attention solely on whether government costs too much, the Tea Party ignores the completely separate question of who pays those costs. Last year, the answer was: not me.
And I'm not happy about it. Some Tea Party types have observed that I am welcome to pay more voluntarily to the federal government if I want, but this entirely misses the point. Given the choice, of course I prefer to give money to my own causes rather than the federal government. But the whole point of democracy is for the community to decide what activities are in our collective self-interest. "Taxes are the price we pay for civilization," and since we all share in that benefit, we should all pay our fair share of the cost.
While the Republicans talk about the "shared sacrifices" necessary to close our government's budget deficit, their plan imposes pain mostly on the sick, the elderly, and the poor. Asking the rich to sacrifice by paying higher tax rates surely pales in comparison. I believe that having wealthy investors pay taxes at the same rate as middle-class workers would be an important step towards making sure that we all contribute to putting our fiscal house in order.
One person makes $1,000,000 per year; the other 99 make $1 per year.
Being an exceeding Conservative (imaginary) country, there is a flat tax system of, say, 10%.
The republican talking point for this country would be,
“The top 1% of the wage earners pay 99.99% of the taxes!
[quote]Given the choice, of course I prefer to give money to my own causes rather than the federal government. But the whole point of democracy is for the community to decide what activities are in our collective self-interest. "Taxes are the price we pay for civilization," and since we all share in that benefit, we should all pay our fair share of the cost.[/quote] If you believe in collective self-interest then why not actually put your money where you mouth is. From your article I see you complaining about something your actually doing and then saying it's wrong.
Hypocritical thinking is what this article is truly about.
First of all, when you pay your taxes, that supposed money does not physically enter an account somewhere to pay down some government debt or deficit; that's not the nature of fiat-money.
What that 'tax' represents is confirmation to the government that you will consume a certain percentage less then the total amount of your income,therefore, it's impossible to tax the super-rich.
Loopholes are created because the lower income people demand them to help in raising children, taking out a mortgage etc., and those loopholes can not discriminate rich or poor.
Austerity cuts in vital social services is also pointless because, again, any 'savings' from these cuts only represent, the consumer of such, forfeiting his right to consume a service he already deferred.
So why this pro-Wrestling debate?
Because the inherent insolvency of a fiat monetary system demands that at some point the consumer stops consuming altogether, otherwise, the financiers tha run the system will lose their paper-wealth through hyper-inflation.
Solution: Glass-Steagall
Glass-Steagall would seperate the taxpaying worker from being obligated to 'defer consumption' for the purpose of Wall Street derivatives losses in order that such deferrence is only for production.
Raising taxes or cutting services for any reason, before you restructure the financiers/creditors first is not only pointless, but a violent act against a society who rely on all of income and services.
However, I'm talking about the phylosophy of fiat-monetary systems, which is far beyond what's being taught about macroeconomics.
You have to first learn how a 'system' of fiat paper moneterism functions before you can argue with someone, like myself.
Paper money, credit, contracts, taxes, fees, etc. are not derived by digging them up out of the ground, instead, they represent a 'tax' or a 'throttling' back of one's consumption.
The details of the logic of using the tax code to promote or discourage particular economic and social activities and outcomes (savings & investment, adoption, solar energy, etc.) is clearly debatable. I am not arguing that point at all. I was merely using a Reductio ad absurdum example to illustrate that the larger meme of "giant tax loopholes for the rich so they aren't paying their "fair" taxes" isn't supported by this example. In reality, this is a 'rich guy' living off assets, not income. If this was supposed to be an discussion of wealth taxes verses income taxes, fine. However if that was the intended focus of the article, it was a failure. The issue of wealth vs income or using the tax code for social/economic engineering could have been framed much clearer.
Bingo. And who is leading the faux populist charge to undermine democracy? The tea party.
The game is obviously rigged and the alternative minimum tax is basically a scam designed to make folks think that the rich are paying their share when they obviously are not.
However, this scenario that he depicts is completely unrealistic for a common taxpayer. Very few people give (or can afford to give) away 25% of their income to charity and also have $45k in investment expenses? What the heck is that? I hope you got a much better return on that money.
But to paint this example on what is wrong with the tax code is a joke. It's not realistic.
You seemed to think it would tell you how to pay no taxes too, and that wasn't the point.
Just do some fact-checking, and you'll see that I'm right ... ;-)
"Many of my friends do not pay income tax, and rightly so, because that is the law."