The top 1 percent pay 36 percent of taxes while only being 19 percent of total income. The loophole thing, despite egregious examples like buffet, is wildly exaggerated.
Ialdabaoth already raised this point, but to put some numbers to it, while the the top 1 percent pays 36 of income taxes, people in that percentile make less than 40% of their income through salary and wages; most of the remainder comes from investments, which are not covered under the income tax and are taxed at a lower rate.
Mr.Moneybags invests $1000 and in a year his share of gross profits is $100.
The Federal corporation tax rate is 35%. The state rate varies but let’s take something like 8% on the average. So after corporate taxes there is $57 left.
If this were short-term capital gains they would be treated as plain income. But let’s say these are long-term capital gains or maybe they were distributed as dividends. Then they would be taxed at 15% (unless it’s dividends and Mr.Moneybags is rich—in that case they’d be taxed at 20%). What’s left is $57 * 0.85 = $48.45. And there are state taxes as well.
So it does seem like investments are effectively taxed at somewhat over 50% rate.
(Note; as the link within that article notes, the while the nominal corporation tax is 35%, in general corporations are able to receive deductions which markedly reduce this.)
Long term investments would effectively be taxed at that rate, but in the same period, non-invested money will tend to be spent and respent to the point that it’s effectively taxed at an even higher level.
The fact that long term investments may be effectively taxed at a rate over 50% (although in practice corporations usually get tax deductions that reduce it below this rate) doesn’t mean much, because over that time horizon, nearly all income will be taxed over and over again. Depending on the channels it travels through, that money could pass in and out of the government’s hands in its entirety multiple times.
Also please note that in the Mr.Moneybags example his profit of $100 came from investing $1000. In highly simplified terms, his company spent $1000 to create value worth $1100. That $1000 spent is, as you say, someone’s income and so gets taxed again.
I think the original issue discussed was same old, same old—the assertion that the wealthy don’t pay their share in taxes because the tax on capital gains is lower than the tax on income and it’s precisely from capital gains that the super-wealthy get their cash flow.
There was an objection that this argument doesn’t account for corporate taxation (the corporate tax rates in the US are among the highest in the world, by the way).
You countered by handwaving that it doesn’t matter much. You also said “Also, money received as income and then spent, becomes someone else’s income, which is also taxed, and so on.” and it’s precisely the point this statement that I do not understand.
I contributed some numbers showing that it does matter and soon thereafter we ended up here.
The original contention I was responding to was that Walmart paying its employees little enough that they require public assistance is effectively a subsidy from the wealthy to the lower classes. My contention is that, while the wealthy may contribute a significant proportion, possibly even in excess of the proportion of the population’s total income that they represent (although this is highly questionable,) the majority of the subsidy would be coming from the middle and upper-middle classes. In this case, the relevance of my comment about money from sources other than long term investments being taxed more times over the same time frame is that long term investments thus represent a lower rate of money being cycled into the government over time.
In what respect? I don’t see how the content of that article differs from the point I made. The article notes that the effective rates are not as low as one lowball estimate suggested, but they’re still much lower than the nominal rate.
Be careful that the same definition of “income” is being used in both cases; I believe that the definition Warren Buffet was using included capital gains (which is specifically not taxed as ‘income’, which is what your first link counts). Capital gains are still taxed at 15%, so if the top 1% gain most of their 19% share through capital gains (or if the share is higher than 19% when capital gains are included), then it’s likely they ARE paying less.
Which is still well below the top income tax bracket of 39.6%.
Given the income tax rates, capital gains tax rates, and the average proportion from both sources composing the income of the top 1%, the average rate of tax on people in that bracket, barring any use of additional tax limiting strategies, should be somewhat under 28%, the rate paid at the $87,851 - $183,250 income tax bracket. The very wealthy, whose income is more dominated by investment revenue, would tend towards a lower rate.
So while Walmart displacing jobs that leave employees in need of public assistance can be seen as a subsidy on the lower classes, it’s not one where the wealthy are paying out either a majority or a disproportionate amount relative to their wealth.
The top 1 percent pay 36 percent of taxes while only being 19 percent of total income. The loophole thing, despite egregious examples like buffet, is wildly exaggerated.
Ialdabaoth already raised this point, but to put some numbers to it, while the the top 1 percent pays 36 of income taxes, people in that percentile make less than 40% of their income through salary and wages; most of the remainder comes from investments, which are not covered under the income tax and are taxed at a lower rate.
Except the investments tend to be in things like corporations that are themselves taxed.
But generally at a lower rate. Also, money received as income and then spent, becomes someone else’s income, which is also taxed, and so on.
So let’s do a little exercise.
Mr.Moneybags invests $1000 and in a year his share of gross profits is $100.
The Federal corporation tax rate is 35%. The state rate varies but let’s take something like 8% on the average. So after corporate taxes there is $57 left.
If this were short-term capital gains they would be treated as plain income. But let’s say these are long-term capital gains or maybe they were distributed as dividends. Then they would be taxed at 15% (unless it’s dividends and Mr.Moneybags is rich—in that case they’d be taxed at 20%). What’s left is $57 * 0.85 = $48.45. And there are state taxes as well.
So it does seem like investments are effectively taxed at somewhat over 50% rate.
Long term investments would effectively be taxed at that rate, but in the same period, non-invested money will tend to be spent and respent to the point that it’s effectively taxed at an even higher level.
(Note; as the link within that article notes, the while the nominal corporation tax is 35%, in general corporations are able to receive deductions which markedly reduce this.)
And...? I admit I don’t see your point.
The fact that long term investments may be effectively taxed at a rate over 50% (although in practice corporations usually get tax deductions that reduce it below this rate) doesn’t mean much, because over that time horizon, nearly all income will be taxed over and over again. Depending on the channels it travels through, that money could pass in and out of the government’s hands in its entirety multiple times.
I still don’t see your point. So what?
Also please note that in the Mr.Moneybags example his profit of $100 came from investing $1000. In highly simplified terms, his company spent $1000 to create value worth $1100. That $1000 spent is, as you say, someone’s income and so gets taxed again.
In this case, I’d have to ask what your point is, since I’m no longer clear on what it is I’m supposed to be responding to.
:-)
I think the original issue discussed was same old, same old—the assertion that the wealthy don’t pay their share in taxes because the tax on capital gains is lower than the tax on income and it’s precisely from capital gains that the super-wealthy get their cash flow.
There was an objection that this argument doesn’t account for corporate taxation (the corporate tax rates in the US are among the highest in the world, by the way).
You countered by handwaving that it doesn’t matter much. You also said “Also, money received as income and then spent, becomes someone else’s income, which is also taxed, and so on.” and it’s precisely the point this statement that I do not understand.
I contributed some numbers showing that it does matter and soon thereafter we ended up here.
The original contention I was responding to was that Walmart paying its employees little enough that they require public assistance is effectively a subsidy from the wealthy to the lower classes. My contention is that, while the wealthy may contribute a significant proportion, possibly even in excess of the proportion of the population’s total income that they represent (although this is highly questionable,) the majority of the subsidy would be coming from the middle and upper-middle classes. In this case, the relevance of my comment about money from sources other than long term investments being taxed more times over the same time frame is that long term investments thus represent a lower rate of money being cycled into the government over time.
As an aside, the U.S. has, by the standards of other countries, high nominal corporate tax rates, but low effective corporate tax rates
Not quite that simple
In what respect? I don’t see how the content of that article differs from the point I made. The article notes that the effective rates are not as low as one lowball estimate suggested, but they’re still much lower than the nominal rate.
Be careful that the same definition of “income” is being used in both cases; I believe that the definition Warren Buffet was using included capital gains (which is specifically not taxed as ‘income’, which is what your first link counts). Capital gains are still taxed at 15%, so if the top 1% gain most of their 19% share through capital gains (or if the share is higher than 19% when capital gains are included), then it’s likely they ARE paying less.
http://www.mercurynews.com/business/ci_24065108/wealth-gap-widens-richest-1-percent-earn-biggest according to this capital gains bumps it up to 22.5 percent.
Which is still well below the top income tax bracket of 39.6%.
Given the income tax rates, capital gains tax rates, and the average proportion from both sources composing the income of the top 1%, the average rate of tax on people in that bracket, barring any use of additional tax limiting strategies, should be somewhat under 28%, the rate paid at the $87,851 - $183,250 income tax bracket. The very wealthy, whose income is more dominated by investment revenue, would tend towards a lower rate.
If we categorize the wealthy by total wealth rather than yearly revenue though, then the top 1% pays a much lower proportion of their total wealth in tax.
So while Walmart displacing jobs that leave employees in need of public assistance can be seen as a subsidy on the lower classes, it’s not one where the wealthy are paying out either a majority or a disproportionate amount relative to their wealth.