Turn on Fox News or listen to conservative talk radio and you won’t have to wait long until someone starts whining about how much of their incomes the rich have to pay in taxes — and how little the poorest pay.
Over a century ago Teddy Roosevelt fought for steeply graduated tax rates — the higher the income, the higher the tax rate should go. We call this principle “progressive taxation.” Today in the United States, we have precious little of it. Federal income tax rates do, to be sure, rise as income rises. But the tax code exempts one huge category of income from these rising rates — income from investments. And many state and local tax levies, such as sales taxes, subject rich and poor to the exact same tax.
It’s often claimed that the richest Americans pay a disproportionate share of taxes, while those in the bottom half pay nothing. These claims ignore the many taxes that most Americans are subject to — federal payroll taxes, federal excise taxes, state and local taxes. Instead they are focused on just one tax, the federal personal income tax. The other taxes are mostly regressive, meaning they take a larger share of income from a poor or middle-income family than they take from a rich family
Researchers at Citizens for Tax Justice ignore nothing in their just-released new report on who’s paying taxes in America. Last year in 2011 the share of total taxes paid by the richest one percent (21.6 percent) is almost identical to that group’s share of total income (21.0 percent). The total effective tax rate for the richest one percent (at 29%) is only about four percentage points higher than the total effective tax rate for the very middle taxpayers (at 25.2%)
Hedge-fund manage Ray Dalio Raked In $3.9 billion in 2011. In the past two years alone Dalio earned $7 billion. Carl Icahn, who runs Icahn Capital, and James Simons, who retired from Renaissance Technologies Corp, also had multibillion-dollar earnings. Another billionaire, Steven Cohen of SAC Capital Advisors in Stamford, was listed earning $585 million last year. The median earner made $235 million
John Paulson of Paulson & Co. ranked #1 with a record $4.9 billion. That exceeds the $3.7 billion he earned in 2007 after famously betting on the housing market collapse. (More)
And there was also David Tepper of Appaloosa Management, $2.2 billion; Steve Cohen of
SAC Capital Advisors, $1.3 billion; and Eddie Lampert, ESL Investments, $1.1 billion. Kenneth Griffin, the hedge fund manager at
Citadel pulled down $700 million in 2011.
SAC Capital Advisors founder Steven Cohen trumpets “double-digit returns for the better part of two decades.” One apparent driver of
this consistency: insider trading. Seven former SAC Capital employees have either pled guilty to criminal charges or settled fraud
charges in civil proceedings.
Most pay only a 15% tax rate, but the Republicans don't want to raise their
taxes.
Over the last five years, the New York Times revealed last week that, of the ten public employee pension funds with the highest share
of their dollars invested in hedge funds and other “alternative investments”, they only gained an average 4.1 percent a year on their
money. But the mangers who runs these funds are making out like bandits and paying
very low tax rates. When we withdrawal our pensions, our funds are taxed as regular
income, depending on our marginal income tax bracket.
AR Magazine says
that the income that hedge fund managers earn with their 2 percent management fees has become a “huge profit center” in and of itself.
If the hedge fund manager's "labors" should actually produce “performance” gains, the 20 percent chunk
they grab gets preferential treatment in the tax code, the notorious “carried interest” loophole.
On the bulk of their earnings, the nation’s top-paid hedge fund managers pay federal income tax at just the 15 percent “carried interest” rate, not the 35 percent that applies to
ordinary income in the top tax bracket.
Congress has so far done nothing to stop this preferential treatment. In fact, Congress is moving in the wrong direction. A bipartisan
majority has just passed legislation (the Jump-start Our Business Start-Ups
Act or the
JOBS Act) that will free hedge funds in the future to more aggressively market their wares.
This new marketing flexibility will likely add to the over $2 trillion in assets now under hedge fund management — and add even more
to the paydays of hedge fund superstars.
The same for many CEOs and bankers. And what did these "job creators" earn last year?
Take for example Ford CEO Alan Mulally (pictured above), who again ranked
#1 in auto CEO pay, with $29.5 million. Mulally's compensation was up 11% from 2010 and
brings his cumulative take to $148.3 million since joining Ford six years ago. Some 120,000 of them have lost jobs under Mulally's
reign, and Ford shareholders saw their shares dropped 36 percent last year. So much for "pay for performance" and "job
creators".
The L.A. Times reports that Scott Thompson, the new CEO at Yahoo may receive a $27-million pay package, according to a regulatory filing. His predecessor, Carol Bartz, had a pay package in her first year at Yahoo valued at $47.2 million.
Bank of America CEO Brian Moynihan was awarded $8.1 million in total compensation last year, making him only the fourth highest-paid executive at the company. Co-Chief Operating Officer Thomas Montag was awarded $14.3 million and Chief Financial Officer Bruce Thompson pocketed $11.1 million. The bank’s other co-COO, David Darnell, was awarded $8.4 million.
Most pay only a 15% tax rate, but the Republicans don't want to raise their taxes.
(Here is a list of others in the BIG MONEY - - - Those on the
Forbes 400 list that have billions in double digits. And below
that is a short list of Hollywood notables, their earnings and net worth; and
below that, a short list of professional athletes. There's a lot cash out there
if you have a lot of talent and luck, and work hard...there's no such thing as
"easy money")
The “Buffett Rule” (which was just
defeated in the Senate) is the principle proposed by President Barack Obama,
and that the tax system should be reformed to reduce or eliminate situations in which millionaires
and billionaires pay lower "effective" tax rates than many middle-income people.
Another report from
Citizens for Tax Justice explains how people like Warren Buffett live on investment income
and can pay a lower effective tax rate than working class people. As the report explains, there are two reasons for this. First, the personal
income tax has lower rates for two key types of investment income, long-term capital gains and stock dividends. Second, investment
income is also exempt from payroll taxes such as Social Security and Medicare; and the higher income
earners have a CAP on Social Security taxes if they receive base salaries, while
the rest of us pay this tax on 100% of out wages.
Senate Majority Leader Harry Reid (D-Nev) said "They shouldn't be allowed to hide behind tax loopholes that rig the system in their favor. The wealthiest one percent takes home the highest share of the nation’s income since the early ’20s, the roaring ’20s. Times are tough for many middle class American families. Millionaires and billionaires aren’t sharing the pain or the sacrifice, not one bit. Last year there were 7,000 millionaires who didn’t pay a single penny in federal income taxes."
As an aside: Psychologists also have a lucrative new niche. They're training therapists for banks who are hired to counsel their clients
with fortunes worth $25 million and up. Occupy Wall Street and other protests against inequality have some of these wealthy
people so spooked that therapists like John Warnick, a consultant with U.S. Bank,
doesn’t use the word “wealthy” with clients anymore. They're opting for “legacy families”
instead (as in the Family
Wealth Alliance).
But not all the spooked super rich are seeing therapists. Some are just doubling up on security. Mark Pincus, the freshly minted
billionaire who runs online gaming giant Zynga, had his firm shell out nearly $1.8 million last year for his home security systems and
services.
It was the best of times, it was the worst of times. Congress, especially the Republicans, refuse to raise their taxes to help pay down
the national debt. The rich, the Koch brothers and Fox News talking heads
have no cause to complain. They have squeezed, with all their political might, all but 0.6
percent of tax progressivity out of taxation in America.
* Also see my post What "we" Earn & what "they" Earn
(regarding movies stars and athletes)
* The Sunday Times Rich List
of 2012 will be published in full on Sunday, April 29.
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