A tax system tilted toward the rich

[funjumper101 15]

Begin quoted text >>>

Congress managed to pass a tax bill in December — a great relief to tax professionals like myself. But what our legislators didn't do was address the fundamentally unfair way the United States taxes people who work for a living compared with people who live off of the earnings of their investments..

Our current system hits working Americans with punishing rates compared with what the investing classes are charged. A generation's worth of legislative twists have left our tax code so warped that during the coming filing season, one married couple bringing in $150,000 in total income from two jobs could find itself paying almost three times as much in federal income taxes as another couple that is alike in every way — except for the source of its income.

The tax code started to tilt in the direction of favoring income from investments — or favoring the 1%, if you will — more than 20 years ago. In 1993, the year Bill Clinton took office, a married couple claiming the standard deduction — with no children, tax credits or other adjustments to income — and earning $75,000 apiece in wages, would have paid $35,650 in federal income taxes.

A similar couple, whose income came solely from long-term capital gains, would have gotten a small break thanks to what was then the 28% top rate on those gains. Their total tax bill, $34,158, would have been about $1,500 lower than that of the wage earners.

By 2000 — the year George W. Bush was first elected — the tax gap between wage earners and investors had already opened up. In that year, our two-wages couple would have paid $33,607 in taxes. They also would have paid that amount if all of their income had been from stock dividends; there was no preferential treatment for dividends at that point.

But the couple whose income came from long-term capital gains would have paid $23,025 in taxes — almost a third less.

Fast-forward to the 2014 tax season. Our two-income couple are still working full time to make the same $150,000 (not a farfetched scenario in our new-normal era of stagnant wages). After a decade's worth of inflation adjustments to their tax bracket, their tax bill is now $24,138.

And the couple living off of their investments? Their tax bill — whether their money came from long-term capital gains or qualifying dividends — has been slashed to $8,385, or a little more than one-third of the tax load on wage earners.

Some of my clients who get their money from unearned income find this discrepancy unbelievable when they compare their federal taxes to their state bills. During this tax season, I know I will have clients — in California and Oregon, where I live — who will pay more in state income taxes than they do in federal taxes. I may even have some clients who will be stunned to learn that they face a four-figure state tax bill while paying exactly zero in federal income taxes for the year.

The reason: The federal code provides that there is no tax on capital gains or qualifying dividends for people in the 15% income tax bracket. That means that a Los Angeles married couple filing jointly for 2014 with $94,100 of adjusted gross income, all from long-term capital gains and qualifying dividends, would pay nothing — zero! — in federal income tax. But their California tax bill would be north of $3,000.

How did we get to this point? No legislator ever campaigned saying, “Tax laborers more than investors!” But several changes in the code since the early 1990s, including lowered tax rates on capital gains and lowered rates on qualified dividends, have conspired to produce that result. My high-income clients were dismayed last year by the new 3.8% net investment income tax, which applies to joint filers with modified adjusted gross incomes of more than $250,000 ($200,000 for singles), but that affects relatively few filers and, perversely enough, applies to non-tax-advantaged income such as rentals, as well as to dividends and long-term gains.

Neither political party gets sole credit or blame. President George W. Bush was most aggressive about pushing such tax changes, but breaks for unearned income were also passed and extended under both the Clinton and Obama administrations. Supporters argued that lower rates would benefit retirees living on fixed incomes and also spur investments. But the Center on Budget and Policy Priorities says that almost half of all long-term capital gains in 2012 went to the top 0.1% of households by income. For the nearly 60% of elderly filers who had incomes of less than $40,000 in 2011, the lower rates were worth less than $6 per household.

In 1924 — a different era to be sure— industrialist-robber baron-Treasury Secretary Andrew Mellon wrote in support of treating wages more favorably than investments. “The fairness of taxing more lightly income from wages, salaries or from investments is beyond question,” he wrote. “In the first case, the income is uncertain and limited in duration; sickness or death destroys it and old age diminishes it; in the other, the source of income continues; the income may be disposed of during a man's life and it descends to his heirs. Surely we can afford to make a distinction between the people whose only capital is their mental and physical energy and the people whose income is derived from investments.”

Well, that's certainly not going to happen any time soon. But leveling out the tax treatment of wages and investment incomes would increase both the perceived and actual fairness of the tax code. It would eliminate preferences that distort investment and financial planning decisions. A fairer code might also increase respect for the system and improve tax collection rates overall.

Joseph Anthony is an enrolled agent and tax pro in Portland, Ore. He can be reached at [email protected].

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The tax rates should be the opposite - Unearned income should be taxed at FAR higher rates than earned income.

[lawrocket 3]

How about this one? Instead of the rich aren't being taxed enough, the middle class are being taxed too much.

My wife is hotter than your wife.

[rushmc 18]

As the government gets bigger, the middle class does worse

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[SkyDekker 1,319]

Exactly!!! With no government the middle class would thrive!!

I mean, who wouldn't want to live a fine Somalian middle class life?

[rushmc 18]

SkyDekker

Exactly!!! With no government the middle class would thrive!!

I mean, who wouldn't want to live a fine Somalian middle class life?

Ah
have you seen the reports on how the rich have done in the last 6 years?

Or dont you really care what the truth is

And, as you do often
You twist my point
I did not say no government
You just die
I was posting to the size of government
But I guess how some may see size as an issue in their lives

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[rushmc 18]

https://danieljmitchell.wordpress.com/2014/01/21/the-biggest-impediment-for-the-poor-is-government-not-inequality/

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[SkyDekker 1,319]

Quote

have you seen the reports on how the rich have done in the last 6 years?

The rich have done quite well...and have done quite well for quite some time. Longer than 6 years.

The decline in the middle class has been taking place much longer than 6 years as well. Don't think there really is a causal relationship between size of government and strength of the middle class.

[rushmc 18]

SkyDekker

Quote

have you seen the reports on how the rich have done in the last 6 years?

The rich have done quite well...and have done quite well for quite some time. Longer than 6 years.

The decline in the middle class has been taking place much longer than 6 years as well. Don't think there really is a causal relationship between size of government and strength of the middle class.

I disagree

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[normiss 733]

I would apply more blame to the gooberment for the policies they create that exports jobs the middle class needs.

[SkyDekker 1,319]

rushmc

***

Quote

have you seen the reports on how the rich have done in the last 6 years?

The rich have done quite well...and have done quite well for quite some time. Longer than 6 years.

The decline in the middle class has been taking place much longer than 6 years as well. Don't think there really is a causal relationship between size of government and strength of the middle class.

I disagree

For that relationship to hold true, the inverse has to be true as well. That decreasing government would better the middle class.

How would terminating 50% of government employees be beneficial to the middle class?

[SkyDekker 1,319]

normiss

I would apply more blame to the gooberment for the policies they create that exports jobs the middle class needs.

Yeah I somewhat agree. Though in a global free market, many of those jobs would get lost regardless. Americans won't work in the conditions and for the wages people in other countries will work for.

Now, in a global free market, that would eventually adjust. Say another 20 years or so. If you want something faster you will need.........government policy.

[rushmc 18]

SkyDekker

******

Quote

have you seen the reports on how the rich have done in the last 6 years?

The rich have done quite well...and have done quite well for quite some time. Longer than 6 years.

The decline in the middle class has been taking place much longer than 6 years as well. Don't think there really is a causal relationship between size of government and strength of the middle class.

I disagree

For that relationship to hold true, the inverse has to be true as well. That decreasing government would better the middle class.

How would terminating 50% of government employees be beneficial to the middle class?

You keep arguing extremes the defend your position
Why?

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[wmw999 2,334]

Do you disagree that the rich are doing well, or that the slide of the middle class has taken longer than six years?

Wendy P.

There is nothing more dangerous than breaking a basic safety rule and getting away with it. It removes fear of the consequences and builds false confidence. (tbrown)

[SkyDekker 1,319]

I just picked a number rush.

How many government employees have to be terminated to improve the middle class in your opinion then?

[Drago 0]

So how well did taxing the rich work in France?

http://www.zerohedge.com/news/2012-12-29/french-constitutional-court-strikes-down-75-millionaire-tax-finds-it-unfair?_sm_au_=iMVSZjF7RkQrl3rF

[kallend 1,853]

Drago

So how well did taxing the rich work in France?

How well did extreme inequality work out in France?

robinengelmandotcom.files.wordpress.com/2009/08/1793-execution-of-louis-xvi.jpg

...

The only sure way to survive a canopy collision is not to have one.

[mirage62 0]

Aaaaaaag.... I know better.....but....

It isn't the amount taxed as much as waste.
It isn't the amount taxed but in how it is spent.

IT IS about how one group thinks taxing the "rich" more who just don't understand it ISN'T Warren Buffet rich (but our politician and people screaming want us to believe that's who's going to "get it") that get's hammered its the two income middle class earners that get screwed.

We have to protect and grow our middle class, I believe that, but buying into raising taxes on others "the rich" and letting the mega rich off the hook is nuts.

Both parties screwed this up.

Kevin Keenan is my hero, a double FUP, he does so much with so little

[Drago 0]

kallend

***So how well did taxing the rich work in France?

How well did extreme inequality work out in France?
robinengelmandotcom.files.wordpress.com/2009/08/1793-execution-of-louis-xvi.jpg

How well did over-taxing the commoners work out for the British?
http://www.revolutionarywararchives.org/pitcairn-2.jpg

[billvon 2,772]

>Instead of the rich aren't being taxed enough, the middle class are being taxed too much.

Neither is true by comparison. Someone making an average income (middle quintile) pays about 3.7% in Federal income taxes; your average ".1%er" pays 26.4%, or over six times greater percentage (and of course far, far more in actual dollars.)

http://pgpf.org/sites/default/files/2014_tax_explainer_chart1-crop.gif

[billvon 2,772]

>As the government gets bigger, the middle class does worse

Good to see you changing your support towards Obama's policies.

======================
Who Is The Smallest Government Spender Since Eisenhower? Would You Believe It's Barack Obama?

Rick Ungar
FORBES
5/24/2012 @ 6:33PM

It’s enough to make even the most ardent Obama cynic scratch his head in confusion.

Amidst all the cries of Barack Obama being the most prolific big government spender the nation has ever suffered, Marketwatch is reporting that our president has actually been tighter with a buck than any United States president since Dwight D. Eisenhower.

Who knew?
=====================
http://www.forbes.com/sites/rickungar/2012/05/24/who-is-the-smallest-government-spender-since-eisenhower-would-you-believe-its-barack-obama/

[rushmc 18]

wmw999

Do you disagree that the rich are doing well, or that the slide of the middle class has taken longer than six years?

Wendy P.

Neither
The rich are doing well and the middle class has been sliding for a long time
Even as the gov grew during the bush admin (if you care to recall I never liked Bush's domestic policies

The big money is within the middle class
This is where the real big money is that bigger government requires

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[rushmc 18]

SkyDekker

I just picked a number rush.

How many government employees have to be terminated to improve the middle class in your opinion then?

Of course you just picked a number

this is what big government liberals do

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[airdvr 201]

Let's bust out a copy of the federal budget and start counting up the bullshit ways our employees blow our money.

Believe me until we begin looking at it as our money this shit will continue. Are the rich getting a better deal? Is the middle class bearing the brunt? Are the poor getting too much of a free ride? No one can answer that until we see where this money is going.

We're nearing the tipping point where the majority of the electorate will never vote for a candidate or program that would rip Uncle Sam's nipple from their collective mouths. That's when the grand experiment falls apart.

Please don't dent the planet.

Destinations by Roxanne

[turtlespeed 212]

rushmc

But I guess how some may see size as an issue in their lives

I think you are right. Liberals compensate wit thoughts of a giant Government.

I'm not usually into the whole 3-way thing, but you got me a little excited with that. - Skymama
BTR #1 / OTB^5 Official #2 / Hellfish #408 / VSCR #108/Tortuga/Orfun

[SkyDekker 1,319]

rushmc

***I just picked a number rush.

How many government employees have to be terminated to improve the middle class in your opinion then?

Of course you just picked a number

this is what big government liberals do

Now that you've got your dig in, you will answer the question?