Monday, September 19, 2011

A Brief Comment on Taxes for the Wealthy

How can we live in a country where millionaires pay a lower tax rate than middle-class families?  And how can anyone, millionaire or not, claim that this is not only okay, but absolutely fundamental?

From doing just a brief bit of reading, the reason why this phenomenon exists is because everyone - whether they are a millionaire or not - pays the same tax rates on their salaries.  The rate varies depending on how much you make.  Very wealthy people, however, frequently receive a great deal of their income from capital gains investments, which are investments in things like real estate and businesses and the stock market.  This income is different from a paid salary.  The taxes on those capital gains incomes are something like 15%.  So a billionaire investor, like Warren Buffett, whose income is more or less exclusively from capital gains investments, pays 15% in taxes, while a middle-class worker making $50K per year in salary probably pays a higher rate.

Can someone explain why people whose income comes from capital gains shouldn't pay the same sort of tax rates as people whose income is primarily from earned salary?  Why should unearned salary (salary made from interest in investments) be taxed lower than salary you actually work for and earn?  I suppose a quick and simple answer would be that it encourages investments, which is good for the economy.  But I still can't help but wonder why perhaps increasing that amount by a small margin (say, from 15% to 18%) wouldn't be beneficial for the federal budget and the overall tax burden and economy, while at the same time it wouldn't discourage people of means from investing in things like businesses and real estate and the stock market.

I'd love to hear some opinions on this, if anyone has one.    


Anonymous said...

As you well know, I am only marginally even in the middle class. And that's if you consider me a single entity and look only at my income and my personal expenses. Because I'm unmarried that's technically how I fall, but in reality, I have a long term, live-in partner, and his son lives with us. When looked at as a three person household we look even less middle class--although we are probably well above the poverty threshold which--if you knew my income--makes the poverty threshold look like a joke.

Still, I've been thinking that in spite of this, I'd be willing to pay a little bit more in payroll taxes if it meant turning our country's fiscal problems around. If I, who can barely make ends meet (and sometimes don't!) can say that, then why can't Donald Trump? Who really is the person who cares about this country then?

Scott said...

Great point, Elissa.

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