>A little class warfare

>Now, I don’t usually like “soak the rich” arguments, but this article got me going:

Tax Policy Blog Article

The cool thing about being incredibly well compensated is that you don’t have to pay much tax. Their average income tax bill was 18.23 percent of income. Including payroll taxes, their average rate was still under 19 percent (my calculation, assuming all wages and salaries, business income or loss, and partnership income or loss are subject to the Medicare payroll tax).

The IRS reported that only 106 out of the 400 paid an average income tax rate over 25 percent. That is, most of them are paying less than Warren Buffett’s famous receptionist, who is subject to a 15 percent income tax rate plus a combined 15.3 percent payroll tax (including Warren’s share). Warren, who might well be in the IRS’s data, says that his own average rate is 17.7 percent.

This is for folks making more than $200 million a year, on average.

That’s cool. My wife and I paid our 15.3% for social insurance, and then are about to pay another 15% overall for income tax. The 15% income tax rate that the secretary is subject to is a marginal rate, so she actually will pay far less in income taxes.

I understand that as a multi-billionaire, Warren Buffet has contributed greatly to our economy (mostly in finding poorly run companies and making them work again) and has paid more tax this year than I will in my lifetime, but as a share of his income, it’s drastically less.

The big driver for this is that capital gains and dividends are taxed at 15%, while ordinary income is taxed up to 35% if you make a lot. Therefore, the wealthy figure out a way to call things capital gains (like stock options).

I think there’s an expectation out there that the tax system is progressive as a whole, it’s certainly what public opinion polls show. When you look at the data, however, public opinion is clearly wrong. It’s progressive up to a point, and then pretty much flat or regressive.

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About perkinsms

I'm an engineer and father interested in transit, parking and economics.
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