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That is correct, the rich don't pay any taxes at all (whenever the can). The was a recent thread on HN regarding tax audits [0]. What I got from that is that the IRS cannot afford to audit the rich because their taxes are complicated and they don't have enough resources to do so. They choose to audit the poor instead because, it is simpler..
Careful. The two articles rely on vastly different cherry-picked definitions of who counts as rich, and neither claim is even remotely true anymore if you use the other definition. The top 1% are indeed audited at about the same rate as the working poor, but they also pay higher taxes than everyone else. This NYT article on the other hand picks out the top 400, who apparently pay lower taxes but are much more aggressively audited by the IRS than less wealthy people even with the funding cuts limiting their ability to do so. (According to the linked letter from the IRS, they heavily audit roughly the top 20,000 most well-off Americans.)
Yup. That's the strategy the Military uses - https://www.rollingstone.com/politics/politics-features/pent...
"At a cost of $400 million, some 1,200 auditors charged into the jungle of military finance, but returned in defeat. They were unable to pass the Pentagon or flunk it. They could only offer no opinion, explaining the military’s empire of hundreds of acronymic accounting silos was too illogical to penetrate"
The Pro Publica link you provided does not show they "audit the poor instead". It shows that the IRS audits poor and rich at the same rates. Unfortunately it seems Pro Publica is succumbing to the same forces as other journalistic outlets and has started to engage in sensationalist headlines.
Here is their title verbatim: > IRS: Sorry, but It’s Just Easier and Cheaper to Audit the Poor
Here is the article's first sentence, verbatim: > The IRS audits the working poor at about the same rate as the wealthiest 1%.
They go on to say this: > ProPublica reported the disproportionate audit focus on lower-income families in April.
Per their own sentence, the poor and rich are audited at the same rate yet they go on to label this "disproportionate". That makes no sense.
Furthermore, they have defined rich and poor in arbitrary ways - the top 1% of taxpayers by income versus EITC recipients. The latter group is 25 million people - 7.6% of the US. So per capita, the "rich" are getting audited more frequently.
Fortunately four states lost a lawsuit[0] attempting to overturn the 2017 Tax changes, specifically they went after the cap on deductions allowed that could be deducted off Federal taxes with regards to taxes paid to states and cities.
In effect what they wanted was for their citizens to be able to write off a much higher level of state and local taxes against the Federal tax debt owed. This is how high tax states in turn claw back money their citizens would other pay to the Feds, by being able to write it off Federal taxes State taxes can be increased and the burden passed along.
Not much different than some subsidies that favor wealthy households over all others in the form of "saving the environment". Watch how holier than thou a hand out is defended with to understand how money is given back to those least needing it. I am guilt of accepting the $7500 handout TWICE for EVs. I have always though that it should have been restricted to much less expensive cars to encourage their development but instead the Federal credit has no limit, car price or income level. IF you pay that much Federal Tax you got it back.
So don't just focus on how much the "rich" pay or don't pay, also focus on all the handouts to people with good to great incomes just masked behind feel good names. (education - in particular master and higher degrees is a subsidy to the same)
[0] https://reason.com/2019/10/07/federal-court-rules-against-bl...
Would it help to start a fund specific to this purpose? I'd imagine there would be significant ROI on it, in the big picture sense.
Relevant Article: https://www.citylab.com/life/2017/09/the-rise-of-public-sect...
I thought maybe we need to penalize "complexity". I feel like there is too much incentive to complexify things in society.
Maybe its time we start considering the Fair Tax plan again.
Seems like the correct thing to do is just to send the very rich person the bill for the costs of investigating their tax arrangements if it is substantially obscure. This would both make investigating these arrangements financially viable and disincentivise people from setting up arrangements like that in the first place.
What a shit article.
It's well known that despite the high marginal tax rates of the past, very few people ever paid those. Deductions abound that have since been eliminated.
What you should really look at is real effective tax rates by income level.[1] What you'll find is that the top 1% make 19% of all income, but pay 37% of all taxes, with an average tax rate of 27%.
The bottom 50% earn 11% of all income, but only pay 3% of all taxes, for an effective rate of 3.73%.
That has to be the worst x-axis on a graph I've seen in a long time. The grid lines measure 0-10th, 20-30th, 40-50th, 60-70th, 80-90th, 95-99th, 99.99th, Top 400? That's atrocious, not only is it non-linear, not only does it have a line with regularly spaced dots giving the impression of continuity, but it skips from percent groups to absolute numbers?
If we're talking about historical taxes why are we looking at tax rates and not taxes paid? Taxes paid by percentage income would be a huge improvement, and absolute taxes seems like an essential number for this conversation.
I'm stunned when I see things like this associated with major universities and newspapers.
edit: The y-axis also goes from 10-70% instead of 0-100%. So both axes are suspicious and the numbers being presented are known for their inaccuracy.
I'm tired to read articles written inside "Opinions" sections.(not that I necessarily disagree with it, you guys are explaining how this article is right or wrong better than me).
I would really like (not intended at HN, it's a general crisis in my life) to read more articles about politics that are neutral and factually oriented. It seems like 90% of the political content I read twists facts and build cheap, cherry-picked arguments to push for their opinions without any scientifical / logical humility (Discussing hypotheses, advancing honest counter arguments...). I am yet to find political writers / journalists raising questions without already knowing the answers to them. Real thinking instead of outrage porn (as another commenter wrote ; I like that expression)
A couple of points regarding the lower rate of taxation for capital gains:
• Capital gains are not inflation-indexed, which is one reason to have a lower rate. Consider three individuals:
* Person A earned $100,000 working at BigCo in 2019
* Person B sold shares in 2019 that were purchased in 2017, for a (LTCG) gain of $100,000
* Person C sold shares in 2019 that were purchased in 1965, for a (LTCG) gain of $100,000
There's essentially no inflation to account for in cases A and B, since all of the relevant transactions happened relatively recently. But what about Person C? The real value of her investment has not increased by $100,000 — it's much less than that because of inflation. So one argument for a lower capital gains rate is to be fairer to people who have held investments a long time.
• Investments are more mobile than wage earners. This is just a fact about the world: I can invest in a different country more easily than I can move to a different country, which leads to "tax competition" for investment income moreso than for wage income. However, this doesn't mean much in the US, where we tax worldwide income (so it doesn't matter where you earn investment income, for the most part).
• Capital gains is "double taxation". It is true that if you tax capital, that is likely post-tax money. That is, it was earned at some time in the past and tax was paid at that time.
There is a notable exception, however: basis step-up at death (inherited assets don't trigger capital gains when passed to heirs. If the total estate is under the current limit, I believe around $10M, then no tax would be paid at all). There are other tax preferences like the primary residence $500k exemption, qualified small business stock exclusion (look it up, startup founders!) that allow people to realize lots of gains without paying any/full tax. There are also less-sexy things like muni bonds.
It's misleading because the rich that they're talking about already paid a much higher rate when they originally got the money in earnings. It's just the 2nd round of taxation: the capital gains which is lower, as it should be.
And let's not forget, taxes are extremely high on everyone. The US Govt spends 38% of all US GDP, currently (recently above 40%!). https://tradingeconomics.com/united-states/government-spendi...
And that's not even including 2nd order effects. When you go to spend it, your costs are much higher because part of what you're paying is someone else's really high tax rates. IE: the plumber has to charge you 300$/hr instead of just 200$/hr.
A lot of convoluted discussion going on here. The simple truth is that in America we tax income earned from having wealth at a much lower rate than income earned from work.
And lower income earners pay a larger portion of their income to payroll taxes than the highest income earners.
All the people I know with money that have shared their effective tax rate pay way less than I do. Way less than this chart shows as well. I'm talking down to the single digits for effective tax rate. I can't 100% confirm that they're telling the truth, but I'm not sure why they would lie.
There’s so much that could be done if we taxed the ultra rich and huge corporations just a little bit more, and more effectively.
> The overall tax rate on the richest 400 households last year was only 23 percent, meaning that their combined tax payments equaled less than one quarter of their total income. This overall rate was 70 percent in 1950 and 47 percent in 1980.
No it wasn’t. Is there even one historical example of someone paying 70% of their income as tax in 1950? Or was that simply the maximum theoretical income tax rate? That was just the maximum. Nobody paid that so it’s meaningless to compare these two numbers.
This looks like another confirmation-bias article to me.
Oh boy, I can see how this ends.
The US already has a very progressive system. The aim here appears to be: increase govt spending. Okay, the only way to do that (looking at other countries that have high shares of govt spending to GDP) is to reduce, not increase, the progressiveness of the tax system.
The quantum of "taxes were higher in the past" is utterly wrong. They were marginally higher in the past but not by much (the big step change was JFK, then Reagan, then back up through Clinton)...how does the author even think govt gets paid for? Revenues are not swinging wildly all over the place.
If you are worried about middle-class income growth, it is worth asking how their income growth has been so low given that a huge chunk of people pay no tax at all and the middle-class pay substantially less than almost anywhere else. That is the truly concerning thing about progressive tax systems, how do you pay for stuff when most people don't pay tax? And the political response to taxation is always: "someone else will pay for my stuff...someone else!!!".
A global minimum corporation tax rate of 25% is ludicrous. I remember talking to a fund manager who talked regularly to Peter Oppenheimer about Apple's offshore cash...the solution, according to the genius Peter, was just for all the countries in the world to just make their tax systems equal to the US...easy...and then the problem would be solved. What is extraordinary about the charlatanism of the article is that the author actually thinks this view is logical. Apple just believed it so they didn't have to pay tax...but this is apparently someone's logical view...2019
Tangent: the US has gone way down the path of "economics and politics as objective science"...this has led to a host of people battering other people with apparently "logical" but totally impractical "solutions". Common-sense thinking and understanding history (i.e. what people have actually done in similar situations) is useful info that would help here.
It's hard to figure out how they got that chart that I've now seen pasted about a dozen times around social media. They cite an unpublished book. But it looks comically wrong. The bottom decile's tax rate is nowhere near 25%. The entire bottom quintile's tax rate is around 3%, and less than 2% for federal taxes.
Perhaps the book plays some games with what constitute a "tax rate?" For example, if you spend double your income on consumption (not uncommon for low income people, especially those who benefit from programs like EITC and SNAP) and then pay sales tax, you could squint really hard and say that a 10% state sales tax is effectively a 20% income tax. But that's crazy; this number would keep going up the more wealth transfer happens.
So since this is all 100% legal, are there resources available for people like us in the upper middle class bracket working as engineers in Silicon Valley to take advantage of all this?
Almost half of my salary goes to taxes every paycheck. That’s almost $150,000 I literally never get to see just taken away.
We should tax wealth not income. Yes I know it's hard to calculate. Doesn't mean we shouldn't do it.
Also financial penalties should be percentages of wealth, not fixed dollar amounts (perhaps with a floor). E.g. fine for littering is 1% wealth.
> The top 1 percent paid a greater share of individual income taxes (37.3 percent) than the bottom 90 percent combined (30.5 percent). [1]
I believe the linked data is from before the tax cuts. However, politics/social justice/etc all aside, it makes sense to me systematically that tax cuts affect the rich more than others. Wouldn't the groups paying the most be adjusted the most when a change occurs?
[1] https://taxfoundation.org/summary-latest-federal-income-tax-...
The bogus concept of “capital gains” needs to be changed. Unless someone invest in a pre-IPO company, or purchases stock during the IPO, capital gains should not apply.
Buying stock on the market is not investing a company, unless the company gets the cash it’s not a capital investment. Buying and selling stock regardless of how long it’s held is not a capital investment. Also the selling of stock should be subject to state sales tax.
The simple fact that your home isn’t consider a capital investment, but a boat is a capital investment is proof that it’s just a tax dodge for the rich.
I've often wondered whether a 100% inheritance tax is the answer to all of this.
You can privilege your children with a private education, tuition, etc. You can't leave them any of your wealth.
If your kids are under 18 when you die, then they can receive a dividend but at 18 that ends. Your spouse should be able to take care of themselves, and not rely on your wealth.
No need for any other taxes whatsoever. Am I missing something?
See Figure 10 on this chart
https://www.nber.org/papers/w22945.pdf
The data in this NYT article comes from research by the same authors as the above paper, which shows the top 1% having maximum effective tax rate over the years of around 45%? Confusing to say the least what is the difference.
> The Confederacy’s hostility to taxes ultimately hampered its ability to raise money and fight the Civil War.
That's a great footnote! I had thought of this several years ago and found a paper detailing the finances of the Confederacy, and boy were they ugly! The Civil War could have been won without a land war at all! It would have gone bankrupt either way. It couldn't issue debt and its farming citizens were selling crops to the government at inflated prices, which it was hoping to use and sell. The blockade prevented the selling, and it had limited use.
When I think about it, the union which won learned to resort to sanctions almost exclusively.
Correction: the rich pay a lower tax rate than you.
They do pay, however, vastly more than you do.
The various governments have somehow managed to brainwash the masses into comparing rates instead of actual amount paid.
Very neat trick of you ask me.
Rich people avoid taxes by converting their income into capital gains, this is often done using not talking big salaries but keeping money in the business
Secondly, rich people often create network of companies where on company is pending to friend's company and some other friends company is lending to your company - using this, you improve credit score of whole network and you can lend harder public money. Then you can simply use it as leverage, this is creating money from thin air.
This article fails to account for exemptions and deductions. This post[1] by the Tax Foundation explains it:
> However, despite these high marginal rates, the top 1 percent of taxpayers in the 1950s only paid about 42 percent of their income in taxes.
Today the 1% pay a little over 36% of their income to taxes.
1. https://taxfoundation.org/taxes-on-the-rich-1950s-not-high/
The role of government is to protect its citizens and their property. By that measure, the wealthy have a lot more to lose than the poor and thus receive a proportionately larger service from the government. They have more to lose if the government fails.
Thus, the wealthy should pay more for that protection. In fact, most of what the government does is protect the wealthy from the poor within its borders.
Of course they do. They can afford personal accountants and other full-time professionals that all they do fiscal optimization for them, trying to explore every loophole in the system for their advantage.
They can open a company, declare expenses and claim a low salary, thet can put the money offshore or on Switzerland, and all those tax-avoiding schemas that are not doable by the common citizen.
For those who can't see the chart on NY Times: https://www.resetera.com/threads/for-the-first-time-on-recor...
>The overall tax rate on the richest 400 households last year was only 23 percent, meaning that their combined tax payments equaled less than one quarter of their total income. This overall rate was 70 percent in 1950 and 47 percent in 1980.
I thought those rates referred to income made above different cut offs, not the overall amount of money made...
Earned-income (labor) shouldn't be taxed at all. It seems very unjust to tax something that is not a profit, such as a job. We aren't taxed when we trade two pineapples for four pears, so why is trading our time/effort for money any different? It's a scam. Though property taxes are likely a bigger scam. With that we're already in a post-ownership society. You never escape rent, never own anything, which is truly unfair on most of us that have to work to survive and our home is our only real asset. Capital gains should be carrying all of the burden, along with other taxes.
I could be persuaded to agree to a tax system that doesn't distinguish between any forms of income, as long as the first 50K was tax-free for everyone and steep progressive taxation after that, whether it's earned or unearned income. A bar set such as my 50K example to acknowledge that basic food/shelter only requires so much if you're willing to migrate, and everyone is treated the same- including the wealthy. They don't need more than 50K a year either, they're human too.
No matter how it's done (I won't argue details with anyone because that's not my point here)- the tax burden shouldn't be on the working class. It should be on the investment class.
Ultimately we'll likely need more worldwide government to track and tax these individuals fairly to eliminate tax scams like the Caymans. Without that I doubt any policy matters. Step one to that is publicly funding elections so those same people don't control our governments.
The default and only tax-avoidance policy needs to be the same one that applies to the working class. If you don't like taxes, stop making money.
Their money working for them. I think this is as it should be. But, all kind of inheritance should be banned, or to be created at heavy tax. That way, a rich self made person got to have and spend his money any way he wants, and at the same time, undeserved millionaire and billionaire get taxed.
This article doesn't do a good job of explaining the income breakdown of the top 400 households. I imagine it is nearly 100% long term capital gains and dividends. That doesn't explain the change in the chart that occurred in 2018 though.
Are these the top in income or wealth? Because afaik most taxes are on income. If you accumulate a lot of wealth and do not proportionally generate income from it (think of private real estate), your tax rate should drop by that measure, right?
I pay 35% of my net income in taxes, so that the rich don't have to!
> Since then, taxes that hit the wealthiest the hardest — like the estate tax and corporate tax — have plummeted.
The corporate tax hits everyone, and it hasn't "plummeted", it was reduced all at once in one year, to a still extremely high level (from my Canadian perspective).
They go to all this effort to make a case that the effective rates paid by people with extremely high incomes are often slightly lower than those paid by people with still-very-high incomes... then they blame the marginal rate!
This article is a mess, the juxtaposition of excellent, valid observations, and contradictory filler is astonishing.
No, they don't The rich pay disproportionately more taxes. See https://taxfoundation.org/summary-latest-federal-income-tax-...
> In 2016, the top 1 percent of taxpayers accounted for more income taxes paid than the bottom 90 percent combined. The top 1 percent of taxpayers paid roughly $538 billion, or 37.3 percent of all income taxes, while the bottom 90 percent paid about $440 billion, or 30.5 percent of all income taxes.
For the first time on record, the 400 wealthiest Americans paid a lower tax rate
So all those political ads are now finally true. I guess that's something.
If you looking at tax rate. Of course, high earner AKA "the rich" pay lower. If you look at the dollars, then the rich pay bulk of the tax.
The argument for corporate income tax is misplaced. Many socialist countries have a low (or no) corporate income tax and that's goods.
A country shouldn't tax the things it would like to encourage. In this case, that companies re-invest and not pull the funds out to pay investors.
Capital gains tax should probably be mentioned. Why is it a much lower rate than income tax? Why not talk about that?
Strange also that the article doesn't really target one specific part of the tax code - they don't mention any loopholes at all. If they'd like to see a change, name exploits.
The article is outrage porn - not trying to inform, or make a specific change. It's simply trying to get clicks and shares.
It's really a shame to see the new york times go this route.
Number of Americans moving from middle class -> rich and poor -> middle class, is also proportional with reduction in taxes isn't it?
They also take all the entrepreneurial risks.
Even if the rich were paying more taxes, that does not automatically mean that they are bearing the tax burden, because of "tax incidence" [0]. A rich person has usually much more bargaining power and can more easily shift the burden to someone else.