>I found this gem at one of my favorite sources of tax data, the Tax Policy Center.
It’s a table that illustrates the effect of the 2001-2003 tax cuts pretty clearly. For the top 400 taxpayers in the US (these are folks making more than $10,000,000 per year, the average tax rate for the median high income taxpayer went from the 25-30% range under the Clinton administration to the 15-20% range under Bush.
For a couple who makes substantially less than the top 400 (say $150K), but make most of their money from wages, you typically pay about 14% in overall income taxes, then additionally you’re going to pay 12.5% in payroll taxes. Only when you get down to the 0% bracket are you paying less than 15% overall. I would guess these guys are mostly exempt from payroll taxes for two reasons:
1. According to other charts on the site, more than 50% of their income is from Capital Gains and Dividends at a 15% Income tax rate with no payroll tax, and
2. The Payroll tax cuts off at an income of about $100,000, and further wages are tax free.
I think this is fundamentally unfair and I believe that not only should the cap on payroll tax be lifted, but the Capital Gains and Dividends tax rates should be raised by about 5%. Unlike the Democratic presidential candidates, I don’t recommend any new spending based on the new revenue, the tax revenue should be devoted to reducing the deficit. And to avoid being called a hypocrite, both of those proposals would result in higher taxes for Wife and I, but I think the long-term health of the economy depends on us getting deficits under control.