Not only do the highest income earners (billionaires and multi-millionaires) who derive most of their income by way of capital gains (via stocks and stock option grants) get a better tax deal by being taxed at a lower rate than those in the top marginal income brackets for regular wages (such as neurosurgeons). Capital gains also exempts the highest income earners from having to paying Social Security taxes. And the super-wealthy benefit from the tax code in many other ways.
According to the Center on Budget and Policy Priorities, tax expenditures, which are subsidies delivered through the tax code as deductions, exclusions, exemptions and other tax preferences, provide their largest subsidies to high-income people --- even though they are the individuals least likely to need financial incentives to engage in the activities that these tax expenditures are generally designed to promote --- such as buying a home, sending a child to college or saving for retirement.
Meanwhile, moderate- and low-income families receive considerably smaller tax-expenditure benefits for engaging in these activities --- and they pay Social Security taxes on 100% of their earnings --- up to $113,700 a year, which means 95% of all wage earners.
Take for example Oracle's CEO Larry Ellison. Last year in 2012 he had cash compensation (earned income) of $5.5 million. Let's say he is "self-employed", which would make his Social Security tax rate 12.4 percent on that income under $113,700. For 2012 he would owe $14,098 in Social Security taxes.
Now add to that his stock and options, when in that same year, he also raked in an additional $90.7 million, paying a capital gains tax rate of 15% --- but paid no Social Security taxes at all on that income, because capital gains that are earned on stock-option grants (passive income, such as income earned through the sell of real estate or SWAG investments) are exempt from any Social Security taxes.
On a total income of $96,200,000 in 2012, Oracle's CEO Larry Ellison would only be required to pay $14,098 in Social Security taxes --- or 0.013% of his income.
Now compare that to a Walmart worker earning $8.82 an hour (and assuming they worked 40 hours a week all year.). They would earn $18,345 and pay 6.2 percent ($1,137) on 100% of that income for Social Security taxes (because it's under $113,700) --- paying 6.2% of their income for Social Security taxes, as opposed to Larry Ellison's 0.013% on his total income.
And consider this, because higher income earners pay in more to Social Security (although proportionately less), and because the rich live longer, they can collect more in return. As of last year, the average monthly Social Security benefit for a retired worker was about $1,230 a month --- but the maximum is currently $2,533 a month. And with their resources, the wealthy can plug into technology to further extend their lives longer. (Medicaid most likely would never cover the cost of chemically suspended cryogenic storage).
And working-class Americans must usually go in debt (paying interest to banks or credit companies) to buy big-ticket items such as homes, automobiles and appliances (or putting a child through college). Whereas, those at the very top can pay cash for any and all of these expenses.
The highest income earners also benefit from social programs that are not meant for them, such as unemployment benefits, Social Security and Medicare (although, they are legally entitled to them) and why means-testing should also apply for upper-income individuals as well. (Although Medicare should be allowed, but only if Congress passed a Medicare for All program).
The one exception that the top income earners don't benefit from may be the Earned Income Tax Credit, a wage subsidy for the working poor and the nation’s largest anti-poverty program. It’s like a reverse income tax — larger at the bottom of the wage scale (now around $3,000 for incomes around $20,000) and gradually tapering off as incomes rise (vanishing at around $35,000).
Robert Reich suggests this subsidy should be enlarged and extended further up the wage scale before tapering off. And he says we can pay for this by cutting subsidies and special tax breaks for the oil and gas industries, big agribusiness, military contractors, hedge-fund and private-equity partners, and Wall Street banks.
In other words, we can finance much of this redistribution to the working poor by ending unnecessary redistributions to the wealthy. Currently, those at the very top of the income latter have the best of all worlds when it comes to redistributing the wealth. Yes, they already pay more in taxes, but only because they have that much more as incomes --- but it doesn't necessarily mean they are paying "their fair share".
But Congress makes the laws and write the tax code. Over half are millionaires themselves; and they ALL earn over the $113,700 income cap placed on Social Security taxes. And many (maybe most) also benefit from capital gains as well --- making them the fox guarding the hen house.
As an aside: It's crazy that the capital gains tax rate that CEOs pay on their stock option grants are lower than the corporate tax rate. That just induces companies to pay their execs ever larger salaries (which are tax deductible), manipulate their stock prices, and offshore more jobs --- rather than reinvest, hire people and pay fairer wages to their employees.
The Republicans, for their part, want the highest income takers to pay LESS taxes and eliminate the minimum wage so that the "job creators" can pay LOWER wages to their employees; and to achieve this, it would mean cutting MORE government spending --- on everything from Social Security to Medicare --- but excluding defense (and their own salaries, of course).
America boasts the highest post-tax-and-transfer income inequality of any highly developed country in the world. Joseph E. Stiglitz said, "With inequality at its highest level since before the Depression, a robust recovery will be difficult in the short term, and the American dream — a good life in exchange for hard work — is slowly dying."
The Wall Street Journal says that inequality is virtually impossible to eliminate because it's not a static phenomenon: "People can earn $1 million one year and virtually nothing the next. And others can start from minimum wage jobs and become millionaires."
But that person who earned $1 million in one year, by most people's standards, will by then already be set for life. Realistically, it's usually just a few people who earn $20-200 million every year, while far more people will work for minimum wage all their life. (So expect more "feed the rich and starve the poor" policies coming from the GOP.)
* Here is the proposed bill that Congress should pass to expand (not cut) Social Security: S.567, the Strengthening Social Security Act