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If the next bracket tops at $200,000 and is taxed at 20%, they would pay that only on the next $100,000 making their maximum tax $27,000 [$7,000 + $20,000] giving them a net after tax income of $173,000. Up to this point, these are close to what people pay today on “first income.” Everyone would get the same net income on the first $200,000 – and so on up the ladder. Confusing isn’t it? There are several points. 1) The “first income” of everyone is taxed at the same rate regardless of how high the income reaches. 2) It needs to be understood that the very rich pay the maximum tax rate only on the income falls within that top bracket.
If we apply this to the current tax rates, what do we discover? Today’s rates top at 35%, an extremely low rate not seen since 1930! Those in the bottom half of the income earners [below $32,000] pay an “effective tax rate” of only 2.99% while the very top income earners pay an effective rate of 22.45%. The best numbers available tell us that the top 400 incomes in our country are all in excess of $87 million each. At that level, they have an after tax net income of $67 million – more than pocket change, wouldn’t you say? But even that is deceiving in that there are a few incomes that are in excess of $400 million, meaning that they would have an after tax income of $312 million. In a country where poverty and starvation still exist, that’s obscene!
Now back to the “dampening effect:” For those who are always looking for “more of the pie,”… status, power, etc.: they face diminishing returns for their gambits and gambles. The strongly progressive tax works in a very “behavioral” kind of a way by taking away the results of extreme greed – the more the greedy take, the more the government takes back. There is progressively less incentive for extreme greed. That’s behavioral.
First of all, it isn’t really a free market at all. It is controlled by the very rich who have instituted all sorts of protections, subsidies, and other self-serving ploys which give them virtual monopolistic power against competition. This belief system purported that business and industry will behave honestly and in the best interest of everyone. In truth, it only described the way the most powerful people wanted us to think the world works. In fact, a democratic and populist point of view which began with President Wilson during WW I and exploded during President Roosevelt’s underlay the entire boom period.
In the U.S. Senate, Arlen Specter proposed a flat 20% tax on earned income (working people's wages), from which rich people's unearned income (capital gains, interest and dividends) would be exempt.
Wealthfare–the money government gives away to corporations and wealthy individuals–costs us more than $817 billion a year.
That’s • 47% of what it costs to run the government (which is about $1.73 trillion a year, not counting entitlement trust funds like Social Security and Medicare)
• enough money to eliminate the federal debt (now $6.6 trillion, accumulated over 200+ years) in just over eight years
• more than four times what we spend on welfare for the poor (currently around $193 billion a year)
For a summary of what goes into that $817 billion figure, look below to the table of contents, which lists the estimated annual cost of the various subsidies, handouts, tax breaks, loopholes, rip-offs and scams this book describes. I’ve calculated these amounts as precisely as possible, but they change every year, and data is often hard to obtain, so they are, of course, estimates. If they seem high to you, cut them all by 50%–or 75%; welfare for the rich would still cost more than welfare for the poor.
Originally posted by dolphinfan
reply to post by drew hempel
They paid income tax in the money they have invested, so they are being taxed twice on that capital.
Tax Consequences When you buy and hold an individual stock or bond, you must pay income tax each year on the dividends or interest you receive. But you won't have to pay any capital gains tax until you actually sell and unless you make a profit. Mutual funds are different. When you buy and hold mutual fund shares, you will owe income tax on any ordinary dividends in the year you receive or reinvest them. And, in addition to owing taxes on any personal capital gains when you sell your shares, you may also have to pay taxes each year on the fund's capital gains. That's because the law requires mutual funds to distribute capital gains to shareholders if they sell securities for a profit that can't be offset by a loss. Tax Exempt Funds If you invest in a tax-exempt fund — such as a municipal bond fund — some or all of your dividends will be exempt from federal (and sometimes state and local) income tax. You will, however, owe taxes on any capital gains.
Originally posted by dolphinfan
reply to post by drew hempel
Friend, when you earn the money, you pay tax on it.
How are these huge gains possible for the top 400? It's due to cuts in the tax rates on capital gains and dividends, which were down to a mere 15% in 2007 thanks to the tax cuts proposed by the Bush Administration and passed by Congress in 2003. Since almost 75% of the income for the top 400 comes from capital gains and dividends, it's not hard to see why tax cuts on income sources available to only a tiny percent of Americans mattered greatly for the high-earning few.
By the height of the credit bubble between 2000 and 2007, the financial industry earned a staggering 40 percent of all corporate profits recorded in the United States, four times what they earned in 1980. Over the same period, average pay on Wall Street doubled, while bonuses at the top sextupled.
As of 2007, the top 1% of households (the upper class) owned 34.6% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 50.5%, which means that just 20% of the people owned a remarkable 85%, leaving only 15% of the wealth for the bottom 80% (wage and salary workers). In terms of financial wealth (total net worth minus the value of one's home), the top 1% of households had an even greater share: 42.7%.
In terms of types of financial wealth, the top one percent of households have 38.3% of all privately held stock, 60.6% of financial securities, and 62.4% of business equity. The top 10% have 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America.
According to a study published by the Federal Reserve Bank of Cleveland, only 1.6% of Americans receive $100,000 or more in inheritance. Another 1.1% receive $50,000 to $100,000. On the other hand, 91.9% receive nothing (Kotlikoff & Gokhale, 2000). Thus, the attempt by ultra-conservatives to eliminate inheritance taxes -- which they always call "death taxes" for P.R. reasons -- would take a huge bite out of government revenues for the benefit of less than 1% of the population.
Here are some dramatic facts that sum up how the wealth distribution became even more concentrated between 1983 and 2004, in good part due to the tax cuts for the wealthy and the defeat of labor unions: Of all the new financial wealth created by the American economy in that 21-year-period, fully 42% of it went to the top 1%. A whopping 94% went to the top 20%, which of course means that the bottom 80% received only 6% of all the new financial wealth generated in the United States during the '80s, '90s, and early 2000s (Wolff, 2007).
Most amazing of all, the top 0.1% -- that's one-tenth of one percent -- had more combined pre-tax income than the poorest 120 million people (Johnston, 2006).