Tuesday, April 19, 2011

Tax Rates Down Dramatically for the Super Wealthy

Happy Tax Day! With an odd element of fanfare, the Associated Presswants you to know one thing about America's tax code: it's broken and everybody knows it. In all, the Tax Policy Center estimates that 45 percent of U.S. households will not pay any federal income tax this year. "The vast majority of those who escape federal income taxes," writes the AP, "have low and medium incomes, and most of them pay other taxes, including Social Security and Medicare taxes, property taxes and retail sales taxes."
But much of the AP's focus is on the few wealthiest Americans, who because of numerous loopholes in the tax code rarely end up paying the oft-quote top tax rate of 35 percent. The AP quotes one Columbia Business School professor who manages to pay only 1 percent of his six-figure income to the federal government. On average, the wealthiest Americans pay only 17 percent of their income in taxes, a dramatic decline from the 26 percent they paid in 1992. 
In his speech last week, President Obama vowed to limit tax breaks, especially those for the wealthy. It's bound to be a political challenge as some of these breaks affect low and middle-income Americans, 45 percent of whom pay no federal income tax whatsoever. But The Daily Beast's John Avalon thinks the president stands to gain ground in the tax battle with a quick fix. Rather than compare Warren Buffett's income with those on the bottom rungs of the top tax bracket--an income of roughly $125,000 a year--Avalon thinks we should get reasonable about taxing the ultra rich:
A smarter option would be to recognize the increasing wealth disparity in America and adjust the top rate accordingly—raising it to $500,000 or even $1 million per year per household. This would match the Democrats’ “millionaires” rhetoric with reality. It would also be politically impossible for Republicans to oppose at a time when we need to pay down our deficit and our debt.
Along these lines, Treasury Secretary Tim Geithner let America know yesterday that we'd have to raise the debt limit. Geithner agrees that tax reform needs to be focused on closing loopholes for the wealthy in order to make a dent in the deficit. He told Christiane Amanpour:
Those benefits, even like the mortgage interest deduction that lets people have two homes, pretty expensive homes … if you target them on the most fortunate Americans, they can afford to take a little bit larger share of the burden. They can afford to do that, and it's the responsible thing to do for the economy.
Not that any of this news makes you more excited to pay your taxes today.

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