Theaverage effective tax rate – total tax liability divided by AGI – on the top400 was 19.9% (up from 18.1% for 2008). About40% paid an effective rate of more than 25%, and about one-third paid aneffective rate below 15.
Arethe rich not paying their fair share of taxes? Is the answer to all our problems, quoting from the Democrat’s script,to tax the rich?
Whatcontributes to a relatively low effective tax rate for the wealthy?
Oneof the reasons is the fact that many higher income taxpayers make a lot oftheir money from investing in the stock market. Long-term capital gains and qualifieddividends are taxed at a maximum rate of 15%, as opposed to 35% for “ordinaryincome” such as wages. BTW, lower incometaxpayers pay a tax rate of 0% on capital gains and qualified dividends. Investing in the stock market helps the economy, doesn't it?
Andhigh income taxpayers claim far more itemized deductions for charitable contributions,which is allowable under both AMT and “regular” tax, than those in the middleclasses. In 2010 Mitt and Ann Romneydonated nearly $3 Million to church and charity (actually $2,983,974). That is 13.8% of their 2010 AGI. For 2011 their charitable deduction onSchedule A was 19.24% of their AGI ($4,020,572/$20,901,075). Most of my clients are average, middle andupper middle class taxpayers, and, however charitable they may be, except for avery few unique situations I never see charitable contributions anywhere near thesepercentages on their returns. More like 2%or 3%.
TheIRS statistical report also indicated that 6 of the richest Americans owed noincome tax. In total, 42 percent of allfilers (or 58.6 million taxpayers, or 1 in 2.4 taxpayers) paid no U.S. incometax in 2009, and did so by taking advantage of the deductions, credits andloopholes in the Tax Code. Obviously themajority of these “tax non-payers” are on the lower end of the income scale. Many lower income taxpayers actually make aprofit by filing a tax return, thanks to refundable credits. Yet there is minimal outcry about this fact.
Ifit is ok for a person with $50,000 of income to take full advantage of theexisting tax laws so as to avoid paying taxes, why is it not equally ok for aperson with $1 Million of income to do the exact same thing?
Thetop 1% of taxpayers, based on AGI, paid 36.73% of federal individual income taxfor 2009. The top 5% paid 58.66% and thetop 10% paid 70.47%.
Theanswer to our financial situation is not to increase tax rates on the rich –but to substantially reduce the “tax expenditures” that make our Tax Code themucking fess it is. By doing so we canactually have lower tax rates. Under thedreaded AMT many deductions that are allowed under “regular” income tax are notpermitted – and the top AMT rate is 28%, less than the top “regular” tax rateof 35%.
And my final question - why should higher income individuals pay a higher % of their income in tax than the rest of us just because they can? TTFN
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