"A Pew Research Center analysis of IRS data from 2015, the most recent available, shows that taxpayers with incomes of $200,000 or more paid well over half (58.8%) of federal income taxes, though they accounted for only 4.5% of all returns filed (6.8% of all taxable returns)."
I agree with this. Folks earning $200k-$500k are paying most of the taxes because they have little-to-no political influence, and they're easy scapegoats because most people make less than them. This is the glass ceiling of the US tax code.
"The top 1 percent of income earners, those having an adjusted annual gross income of $480,930 or higher, pay about 39 percent of federal income taxes. That means about 892,000 Americans are stuck with paying 39 percent of all federal taxes."
This is a naive perspective, but, imagine someone has 10 million dollars banked, and earns 175,000 a year in dividends. S/he pay 26-35k in taxes (15-20%, cause I don't know tax code). Now, a couple has a combined income of 175,000 a year. They pay 40k in combined federal + FICA (used an income tax calculator). I think that 5-14k discrepancy is where the blame for "not paying taxes" comes from.
"... imagine someone has 10 million dollars banked, and earns 175,000 a year in dividends. S/he pay 26-35k in taxes ..."
I am imagining this and I immediately also imagine that quite a lot of income and/or capital gains taxes were paid during the accumulation phase of that $10M.
I suppose she could have inherited $10M tax free[1] but whoever bequeathed it to her then paid the taxes on it during the earning/accumulation phase.
My point is, comparing the present day taxes on dividends on a nest egg to the income taxes someone else is paying is not a very useful comparison. All else being equal it should not be interesting or provocative to see the income taxes exceed the nest egg taxes in an example like yours.
Dividends are income. It's farcical that they are not treated as such in the US tax code.
I believe the point is that in the example above, someone living off their nest egg, able to do nothing, are paying less in taxes than someone still in the workforce, earning.
This exacerbates the concerns over wealth inequality because those who have built wealth, can then grow their wealth at a lower tax rate than those stuck at the bottom of the income ladder.
dividends are treated almost the same way. at least from tax rate point. now - you can offset dividends by other losses, but you can do similarly if you have just W2 income and run side business losing money (with few caveats)
EDIT: Thanks JediWing - I have no clue why I thought dividends are taxed at the same level. Thank you correcting me.
Dividends are a flat 15% for earners under ~425k income, and a flat 20% for those over.
This means that a stock grant with a generous dividend is a loophole for high earners...in addition to simply adding complexity and magic thresholds to the tax code. It seems to me to be just bad policy.
I'm not sure how you interpreted my comment, but I'm partially agreeing with you. "Tax the rich" never works out that way, since it's mostly people at the very bottom of the upper class paying most of the taxes.
The wealthy folks everyone gets in an uproar over don't pay any taxes, have the political power to avoid it, and even if they didn't, would be able to hire lawyers and accountants to help them avoid it. As a result, it's the people trying to claw themselves into the wealthy class that are most penalized by income taxes.
Let's go to a consumption tax with some kind of cash prebate to make sure the first $10k-$20k of spending is untaxed, and dispense with income taxes that have largely failed to do what they were designed to do.
I think the argument goes, people who make 500k per year are well off, but they are not running the country. People with 100 million, 1 billion, or hell, 100 billion dollars are the people not paying their fair share.
There is an undue burden on the middle and upper middle class.
To put it in perspective Leona Helmsley (real name Lena Rosenthal) was worth 8 USD billion when she said 'only poor people pay taxes' in the '80's, and she was one of the little people herself in comparison to the global elites...
If you are a rich individual, you will be paying the 20% capital gains rate. 15% is the middle-class rate.
And unless the government starts allowing people to deduct inflation losses on their investments (complicated), which can be substantial, long-term capital gains will always be at a lower rate than income taxes.
I guess it depends on your definition of rich, a married couple is allowed up to half a million dollars in 15% capital gains. Not exactly “middle class.”
If you and your wife took $1 million in cap gains every year you’d still only be paying 17.5% tax. Again, not exactly middle class.
Also, we have no inheritance tax up to $10 million dollars. The idea that even a sizable minority of rich people are “hiding” their money abroad is not true. Especially with FATCA.
It would be nice to be more specific then. I am, probably, a rich one. And such statements really hurts me after giving away a lot of cash to federal government. Money which I earned by living frugally (still am), working fulltime job + building businesses, and learning every day.
"A Pew Research Center analysis of IRS data from 2015, the most recent available, shows that taxpayers with incomes of $200,000 or more paid well over half (58.8%) of federal income taxes, though they accounted for only 4.5% of all returns filed (6.8% of all taxable returns)."