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Wednesday, 17 April 2013 09:05

Income Taxes Do Not Fully Reflect the Low Taxation on the Rich in the US

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boat2"Only Little People Pay Taxes: Why a janitor ends up with a higher tax rate than a millionaire" is an article in Mother Jones Magazine that dispels a key myth about the rich and taxes:
The superrich don't pay as much as they used to—and thanks to a combination of tax cuts and preferential tax policies, their tax obligations can be less demanding than the so-called little people's. In fact, the very wealthiest Americans' tax burden has been steadily dropping for years, even as they've enjoyed astounding income growth not seen by the vast majority of Americans.
Tax rates for the wealthy have fallen substantially since they peaked in the 1940s. During the past 30 years, they have been cut at a much faster rate than middle- and low-income taxpayers'.
Remember that much of the money "earned" by the super rich is paid under along-term capital gains tax, which is considerably less than any high income tax bracket.  That's what made Mitt Romney's tax rate so low, along with offshore bank accounts and other tax evasion schemes that can be perfectly legal, as David Cay Johnston wrote about in a book of the same name: "Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich--and Cheat Everybody Else."
And then you have regressive flat taxes such as sales taxes and Social Security  (the latter of which is not even taxed above $113,7000 in income).
In short, income tax is not reflective of the total percentage of taxation on the ultra rich as compared to the working class, due to flat taxes, tax breaks, and legal tax evasion (not to mention illegal tax evasion).
As far as corporations – and remember corporate profit affects salaries, bonuses, stock value and dividends, the Mother Jones article notes:
Corporations exploit various loopholes and tax breaks to reduce their IRS bills—perhaps none more notoriously than General Electric. Though the corporate tax rate is 35%, GE has paid nothing near that for nearly a decade.
As columnist Mark Shields wrote on February 12, 2001, reflecting on the Clinton 1993 income tax increases on the wealthy as compared to the Bush tax cuts:
According to an analysis of IRS data done by the Center on Budget and Policy Priorities, in 1992 "the average after-tax income of the 1 percent of tax filers with the highest income" was $398,000.  By 1997…the top 1 percent of tax filers has an average after-tax income of $518,000.  That amounts to an average income increase for the richest 1 percent of 30.1 percent.
In short, one can argue that the tax increases on the rich were at least one part of a booming economy that benefited the rich quite well under the two Clinton administrations.
The Mother Jones article concludes:
Leona Helmsley's distaste for paying taxes eventually landed her in federal prison. But the rich have little need to break the law to avoid the tax collector. As Martin A. Sullivan of Tax.com recently calculated, a New York janitor making slightly more than $33,000 a year pays an effective tax rate of nearly 25%. And the effective tax rate for a resident of the Park Avenue building named after Helmsley, earning an average of $1.2 million annually? A cool 14.7%.
So the janitor pays 25% of in taxes but the 1 percenters pay under 15%.
When it comes to taxation looked at as a whole, the middle class gets hit upside the head, while the wealthy get away with paying a cheap tip.
(Photo: Derjonas)