|Why does this single mom with two children who is working at a local diner in Oklahoma, and only earning $7.25 an hour ($15,000 a year) pay the same effective tax rate as this CEO of a New York City investment bank who's earning $15 million a year in capital gains from stock options he receives in his executive compensation package?|
CEOs and other corporate executives, bankers, private investors, and hedge fund mangers pay 15% in capital gains taxes, and the waitress pay 15% in federal income taxes that's deducted from her paycheck.
Also, because Social Security taxes are capped at $106,800 the waitress pays Social Security taxes on 100% of her wages ($15,000), whereas the CEO only pays 0.07% in Social Security taxes on his $15 million income.
So the Oklahoma waitress is actually paying more in taxes as a percentage of her annual earnings than that of the CEO of a big bank on Wall Street in Manhattan.
In 1977 the capital gains tax rate was once set at 40%. But under Bill Clinton they were lowered to 28%, and then later he lowered them more, to 20%. After George W. Bush took office he lowered them again from 20% to 15% in 2003...the same effective tax rate as those earning between $18,500 and $34,500 a year. Why? Aren't the wealthy supposed to be paying the upper bracket tax rate of 35% on their total annual income, and not just on a small fraction of their base salary?
The wealthy are also paying less as a percentage of their incomes than teachers, police, and firemen who generally earn slightly over $34,000 a year for annual wages, and that puts them in the 25% tax bracket. But CEOs and other corporate executives, bankers, private investors, and hedge fund mangers are only paying 15% for taxes on their capital gains.
Who's waging a "class war" on who? It must be congress, because they are the ones who write and pass the tax laws (and half of them are millionaires themselves).
99% of all Americans have an income level in the first 4 tiers of the income tax brackets. Even most small business owners, doctors, and members of congress fall into this category.
The 5th tier might include trial lawyers, lobbyists, or the owners of very successful mid-size businesses.
The 6th and top most tier would be CEOs and other executives on the board of large corporations, as well as bankers, private investors, and hedge fund mangers. But the majority of their wages rarely reach the $379,150 level and taxed at the maximum rate of 35%. The majority of their pay is from capital gains and taxed at only 15%.
For any tax benefit that an average taxpayer might receive from any deduction, exemptions, deferment, allowance, depreciation, etc., you can bet that someone who's majority of annual earnings is derived from capital gains as their primary income, will benefit massively more...that's why the U.S. tax code is so complicated.
For more information on how the average American taxpayer has been fleeced by this tax preference for the wealthy, see my post You Pay Hidden Entitlements for the Rich to better understand how capital gains taxes benefits the rich at the expense of the middle-class and poor. I also give a brief history of the tax code and a time-line of the changes that were made dating back to 1921...when capital gains were no longer taxed as regular income.
And the only reason corporations and banks can afford to pay their CEOs record bonuses is because they have been making record profits. And the only reason corporations and banks are making record profits is because they haven't been paying enough in taxes either...it true! Read my post: Record Profits + Record Bonuses = Zero Jobs
Raise the capital gains tax rate back to 28% (and on stock dividends too) and eliminate the "cap" on Social Security taxes for wealthy CEOs and other corporate executives, bankers, private investors, and hedge fund mangers. Make them pay this tax on 100% on their total personal income like everybody else must.
Also read: Tax breaks for billionaires: Loopholes for hedge fund managers by the Economic Policy Institute (a non-profit and non-partisan think tank).
- When Republicans cut our entitlements, they call that "a shared sacrifice".
- When CEOs rip us off and dodge taxes, they call that "doing business".
- When we speak up to complain, they call that "class warfare".
My Related Posts:
- Subsidies for the Rich and Famous
- Historical Tax Rates on the Rich (1862 to 2011)
- The Second Gilded Age: History Repeats Itself
- Mellon: The Banker Who Rigged the U.S. Tax Code
- The GOP Tax Plan - Ignorance, Insanity, or Greed?
- We have a Revenue Problem, Not A Spending Problem
- 280 Corporations are "Too Big to Tax"
- Trickle-Down Economics: The Cruel 30-Year Hoax
- You Pay Hidden Entitlements for the Rich
- Record Profits + Record Bonuses = Zero Jobs
Other Related Articles
- "The richest 1 percent have more financial wealth than the bottom 95 percent combined."
- The total net worth on the Forbes 400 List marks $1.5 Trillion in 2011
- The Global Super-Rich Stash: Now $25 Trillion
- Historical Tax Rates and Time-line
- Capital gains from Citizens for Tax Justice
- 1977 - 2007 tax rates from U.S. Treasury
- Economic Policy Institute on capital gains taxes
- Capital gains explained from U.S. Internal Revenue Service
- The great corporate tax scam