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Forum Post: Taxes, the Rich and the Not-So-Rich

Posted 2 years ago on Feb. 14, 2012, 11:35 a.m. EST by fairforall (279)
This content is user submitted and not an official statement

Fact Check: The Rich, Their Secretaries and Taxes

Treasury Secretary Geithner yesterday declined to answer a key question about the president’s proposed “Buffett Rule”: How many millionaires and billionaires pay lower tax rates than middle-income families?

The answer: not that many.

The nonpartisan Tax Policy Center has crunched the numbers and found that Warren Buffett and his secretary are the exception to the rule. For the most part, the wealthy pay a significantly higher percentage of their income in taxes than middle-income workers.

The key numbers: this year those earning over $1 million will pay, on average, 29.1 percent on federal taxes. Those earning between $50,000 and $75,000 will pay 15 percent.

That’s not to say that there aren’t wealthy people who are even better than Buffett at avoiding taxes. In 2009, 1,470 people with incomes over $1 million a year paid absolutely no taxes. But that represents less than 1 percent of those earning over $1 million a year. Raising their taxes may be the fair thing to do, but it will not bring in much revenue.

There were 236,883 taxpayers who earned more than $1 million in 2009. That’s less than two-tenths of one percent of all filers.

The Top 400 tax filers – the very richest Americans – do pay a lower rate of just 18.11 percent of their total income. Why? Many of them are hedge fund managers and people like Buffet — their income is pegged how much their investment fund grows. For some reason, this income is counted as so-called “carried interest” (even though it is not interest at all; it’s more like a performance bonus) and is taxed at the lower 15 percent capital gains rate.

It’s a loophole for hedge managers, pure and simple. But while it may be an outrage that these uber-rich hedge fund managers pay such a low rate compared to the rest of us, there are just not many of them out there.

But the top 400 tax filers represent a tiny sliver – just .00028 percent of all filers. The vast majority of those earning over $1 million a year pay at a higher rate, which is why the average tax rate for this group, according to the Tax Foundation, is 29.1 percent of taxable income. And, yes, this number includes income taxes, payroll taxes and capital gains taxes.

The numbers change a bit if you look at total income before deductions and tax credits (Adjusted Gross Income), according to another non-partisan group, The Tax Foundation. Here’s how the numbers breakdown using IRS data from 2009 on Adjusted Gross Income for the income groups at issue in this discussion:

  • $10 million a year paid 22 percent.

  • $1 million to $10 million paid 25 percent.

  • $50,000 to $75,000 paid 7 percent.

The rate for the middle-income filers drop because many individual deductions and tax credits are phased out for higher income taxpayers.

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17 Comments


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[-] 2 points by HitGirl (2263) 2 years ago

However, more liberal commentators like NY Times columnist Paul Krugman tend to cite the statistics on the top 400 income earners. In a January 20, 2012 OpEd he wrote, "Since 1992, the I.R.S. has been releasing income and tax data for the 400 highest-income filers. In 2008, the most recent year available, these filers paid only 18.1 percent of their income in federal income taxes; in 2007, they paid only 16.6 percent."

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[-] 1 points by Faithntruth (997) 2 years ago

Simplistic argument given we know these folks are hiding income, using loopholes, influence legislation for changes, engaging in illegal and unethical practices to increase wealth, utilizing infrastructure without paying for upkeep to increase their wealth, and getting government funds to offset the taxes they might actually pony up.

I wrote about this before: look online at walmarts annual report. They withhold paying over 200 million in taxes while they dispute them with the IRS. They pay a penalty of only 2 milliom on that disputed money, and they do this every year.

[-] 1 points by HitGirl (2263) 2 years ago

If enacted, the rule change would result in $36.7 billion ($0.0367 trillion) per year in additional revenue, according to a January 2012 analysis by the Tax Foundation, a conservative think tank.[8] An alternative study released that same month by the Citizens for Tax Justice, a progressive think tank which favors the change, stated that the change would add $50 billion ($0.050 trillion) per year in revenue.[7]

From Wikipedia

[-] 1 points by fairforall (279) 2 years ago

for those not sure, hitgirl is referring to the proposed Buffet Rule. HG, it appears you are not as concerned with everyone paying their fair share as you are with increasing government revenue

[-] 1 points by HitGirl (2263) 2 years ago

Does everybody earn their fair share?

[-] 1 points by fairforall (279) 2 years ago

If by fair, you mean equivalent, no. even though it's OT, maybe you can expound on the concept of a person earning their fair share. Take Steve Jobs as an example.

[-] 1 points by HitGirl (2263) 2 years ago

I have to go but my point is that you can't talk about paying a "fair" share without addressing whether people are payed fairly.

[-] 1 points by fairforall (279) 2 years ago

you can if you believe any dollar "earned" should have a return of some percentage to the gov. which is the basis of argument for people paying their fair share. under that aspect, it doesn't matter who earns it or how much they earned. you were previously posting the buffet rule which only attempts to make the higher earners pay more so you are clear on the concept as long as you understand what you post. hurry back. :)

[-] 1 points by 1sealyon (434) 2 years ago

Raising taxes on anybody is good money after bad.

Suppose you want to give $1000 of your money to feed the hungry. Would you be better off giving it to the Gov in the form of taxes or your local church?

The best that the Gov can manage is to get $ 0.27 on the dollar to intended welfare recipients while a typical private charity provides $ 0.90. Many are closer to $0.95.

$ 0.27 on the dollar, not only is that a disgrace it's immoral.

[-] 2 points by Faithntruth (997) 2 years ago

Where did you get your statistics? Many charities ( and notably the pink ribbon ladies one) use as little as 10 cents on the dollar for the declared purpose of the organization.

[-] 1 points by 1sealyon (434) 2 years ago

Don't give to any charity with an efficiency ranking of less that 85%. There are plenty of ranking agencies like the one below. The Fed Gov has embarrassingly low efficiency.

http://www.charitynavigator.org/index.cfm?bay=topten.detail&listid=11&v=2

[-] 1 points by Faithntruth (997) 2 years ago

Thanks for the link.

[-] 1 points by fairforall (279) 2 years ago

the nice thing about maintaining as much money as possible for charitable causes is the data is pretty easily available for a person to give to those they believe are most effective with those dollars. I agree with seal's recommendation of 85%.

[-] 0 points by XenuLives (1645) from Charlotte, NC 2 years ago

That would be great, IF everyone was forced to give to these efficient charities. I'd rather see the government force the rich to give their fair share than to rely on a few Bill Gates types to foot the bill.

Not to mention that we still need to pay for the military, police, court systems, etc. We all need to pitch in for those services.

[-] 1 points by fairforall (279) 2 years ago

Why don't you like choice to give to the charity you desire?

A rich person "pitches in" many times over for those services than a moderately wealthy person. And about 50% "pitch in" only based upon what they consume .

[-] 1 points by HitGirl (2263) 2 years ago

Not only is that a disgrace it's immoral and, worse yet, entirely inaccurate.

[-] 1 points by 1sealyon (434) 2 years ago

Some backup:

http://libertariananswers.com/is-private-charity-more-efficient-than-government-welfare/

http://www.cato.org/pubs/policy_report/cpr-18n6-1.html

http://www.essortment.com/pitfalls-welfare-reform-55515.html

Budget of the United States Government: Fiscal Year 2011, Historical Tables, Table 12.3.

2 Department of Health and Human Services, "2009 TANF Report to Congress," June 2009, p. X-6.

3 Susan W. Blank and Barbara B. Blum, "A Brief History of Work Expectations for Welfare Mothers," Welfare to Work 7, no. 1 (1997): 29–30.

4 Blanche Coll, Safety Net: Welfare and Social Security, 1929–1979 (New Brunswick, NJ: Rutgers University Press, 1995), p. 104.

5 Blanche Coll, Safety Net: Welfare and Social Security, 1929–1979 (New Brunswick, NJ: Rutgers University Press, 1995), p. 199.

6 James T. Patterson, America's Struggle against Poverty (Cambridge, MA: Harvard University Press, 1989), p. 171.

7 Marvin Olasky, The Tragedy of American Compassion (Washington: Regnery, 1992), p. 182.

8 Robert Rector and William Lauber, America's Failed $5.4 Trillion War on Poverty (Washington: Heritage Foundation, 1995), p. 11.

9 In King v. Smith (1968), the Supreme Court struck down state laws denying benefits to mothers with able-bodied men in the house. The same year, a federal court struck down laws against aid to mothers whom AFDC administrators considered "employable." In 1969 the Supreme Court found in Shapiro v. Thompson that state residency requirements for welfare were unconstitutional. And, in perhaps the most important welfare rights decision, the Court held in Gold­berg v. Kelly (1970) that welfare was an "entitlement" that could not be denied without due process.

10 See Department of Health and Human Services, www.acf.hhs.gov/programs/ofa/data-reports/caseload/caseload_archive.html.

11 David Merriman, "Should States Receive More Equal TANF Funding?" Urban Institute Short Takes on Welfare Policy, no. 4, May 2002.

12 Budget of the United States Government: Fiscal Year 2011, Historical Tables, Table 12.3.

13 Department of Health and Human Services, "2009 TANF Report to Congress," June 2009, p. vi.

14 Department of Health and Human Services, "2009 TANF Report to Congress," June 2009, p. II-12.

15 Department of Health and Human Services, "2009 TANF Report to Congress," June 2009, p. II-16.

16 Vee Burke, "Welfare Reform: TANF Trends and Data," Congressional Research Service, September 10, 2001.

17 Department of Health and Human Services, "2009 TANF Report to Congress," June 2009, p. v.

18 Department of Health and Human Services, "2009 TANF Report to Congress," June 2009, p. vii.

19 Department of Health and Human Services, "2009 TANF Report to Congress," June 2009, p. vii.

20 Department of Health and Human Services, "2009 TANF Report to Congress," June 2009, p. III-19.

21 LaDonna Pavetti, "Creating a New Welfare Reality: Early Implementation of the Temporary Assistance for Needy Families Program," Journal of Social Issues 56, no. 4 (2000): 609.

22 Department of Health and Human Services, "Indicators of Welfare Dependence: Annual Report to Congress, 2008," p. III-36.

23 Ron Haskins, "Does Welfare Encourage Illegitimacy? The Case Just Closed. The Answer is Yes," American Enterprise Institute, January 1996.

24 Robert Rector, Heritage Foundation, Testimony before the Subcommittee on Human Resources of the House Committee on Ways and Means, February 10, 2005.

25 Department of Health and Human Services, "Indicators of Welfare Dependence: Annual Report to Congress, 2008," p. II-33.

26 Robert Rector, Heritage Foundation, Testimony before the Subcommittee on Human Resources of the House Committee on Ways and Means, February 10, 2005.

27 Jodie Levin-Epstein, Christine Grisham, and Maya Batchelder, "Regarding Teen Pregnancy Prevention and Teen Parenting Provisions in the Temporary Assistance for Needy Families Block Grant," Center for Law and Social Policy, November 30, 2001.

28 Marvin Olasky, The Tragedy of American Compassion (Washington: Regnery, 1992), p. 186.

29 Shelley Lundberg and Robert Plotnick, "Effects of State Welfare, Abortion, and Family Planning Policies on Premarital Childbearing among White Adolescents," Family Planning Perspectives 22, no. 6 (1990): 246–51.

30 Robert Rector, Heritage Foundation, Testimony before the Subcommittee on Human Resources of the House Committee on Ways and Means, February 10, 2005.

31 Mary Corcoran et al., "The Association between Men's Economic Status and Their Family and Community Origins," Journal of Human Resources 27, no. 4 (Fall 1992): 575–601.

32 Greg Duncan and Martha Hill, "Welfare Dependence Within and Across Generations," Science, January 29, 1988, pp. 467–71.

33 Richard Vedder, Lowell Gallaway, and Robert Lawson, "Why People Work: An Examination of Interstate Variation in Labor Force Participation," Journal of Labor Research 12, no. 1 (Winter 1991): 47–59.

34 Robert Moffitt, "Incentive Effects of the U.S. Welfare System: A Review," Journal of Economic Literature 30, no. 1 (March 1992): 17.

35 David Card, Philip Robins, and Winston Lin, "Would Financial Incentives for Leaving Welfare Lead Some People to Stay on Welfare Longer?" National Bureau of Economic Research Working Paper no. 6449, March 1998.

36 Cited in David Card, Philip Robins, and Winston Lin, "Would Financial Incentives for Leaving Welfare Lead Some People to Stay on Welfare Longer: An Experimental Evaluation of ‘Entry Effects' in the Self-Sufficiency Project," National Bureau of Economic Research Working Paper no. 6449, March 1998.

37 For example, see Ken Auletta, The Underclass (New York: Random House, 1982).

38 Douglas Smith and G. Roger Jarjoura, "Social Structure and Criminal Victimization," Journal of Research in Crime and Delinquency 25, no. 1 (February 1988): 27–52.

39 John L. Wright, Marge Green, and Leroy Warren Jr., "An Assessment of Crime in Maryland Today," Maryland State Conference of Branches, NAACP, Annapolis, February 1994, p. 7.

40 M. Anne Hill and June O'Neill, "Underclass Behaviors in the United States: Measurement and Analysis of Determinants," Baruch College, City University of New York, August 1993, p. 73.

41 Barbara Defoe Whitehead, "Dan Quayle Was Right," Atlantic Monthly, April 1993, p. 50.

42 Cited in Tom Bethell, "They Had a Dream: The Politics of Welfare Reform," National Review, August 23, 1993, p. 33.

43 Robert Lerman, "Unwed Fathers: Who Are They?" American Enterprise, September-October 1993, pp. 32–37.

44 Robert Haveman, Barbara Wolfe, et al., "Do Teens Make Rational Choices? The Case of Teen Nonmarital Childbearing," University of Wisconsin, Institute for Research on Poverty, Discussion Paper no. 1137-97, July 1997.

45 Robert Wuthnow, Conrad Hackett, and Becky Yang Hsu, "The Effectiveness and Trustworthiness of Faith-Based and Other Service Organizations: A Study of Recipients' Perceptions" (paper presented at a conference on "The Role of Faith-Based Organizations in the Social Welfare System," Washington, DC, March 6–7, 2003).

46 See Department of Health and Human Services, Office of Inspector General, "Review of Improper Temporary Assistance for Needy Families Basic Assistance Payments in New York State for July 1 through December 31, 2005," October 31, 2007; and Department of Health and Human Services, Office of Inspector General, "Review of Improper Temporary Assistance for Needy Families Basic Assistance Payments in Michigan for July 1 through December 31, 2005," November 13, 2007.

47 See Department of Health and Human Services, Office of Inspector General, "Review of Improper Temporary Assistance for Needy Families Basic Assistance Payments in Ohio for April 1, 2006 through March 31, 2007," July 15, 2008.

48 See Department of Health and Human Services, Office of Inspector General, "Review of Improper Temporary Assistance for Needy Families Basic Assistance Payments in California for April 1, 2006 through March 31, 2007," September 2008.

49 See, for example, Russell Roberts, "A Positive Model of Private Charity and Public Transfers," Journal of Political Economy 92 (1984): 136–48; and B. A. Abrams and M. D. Schmitz, "The Crowding out Effect of Government Transfers on Private Charitable Contributions," Public Choice, no. 1 (1978): 28–40.

50 American Association of Fundraising Counsel (AAFRC) Trust for Philanthropy, "Giving USA 2002," Indianapolis, IN, June 20, 2002.

51 Christopher Horne, David Van Slyke, and Janet Johnson, "Attitudes for Public Funding for Faith-Based Organizations and the Potential Impact on Private Giving" (paper presented to a conference on "The Role of Faith-Based Organizations in the Social Welfare System," Washington, DC, March 7–8, 2003).

52 Ret Boney, "U.S. Giving Hits Record $306 Billion," Philanthropy Journal online, June 23, 2008. And see Corporation for National and Community Service, "Volunteering in America," July 2008, p. 2.