5 Ways Rich People's "Entitlements" Cheat You and Me

[xchrom]

http://www.alternet.org/economy/5-ways-rich-peoples-entitlements-cheat-you-and-me



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1. Income: Mocking Our 'Progressive' Tax System

Americans who earn millions of dollars a year feel entitled to the same maximum tax rate as those making about $400,000 a year. Progressive taxation stops at that point. In fact, it reverses itself, with the highest earners paying lower tax rates. The richest 10% pay about 20 percent in federal taxes, and it goes down from there, with the richest 400 paying less than 20 percent. When all taxes are included (payroll, sales, state and local), the super-rich pay about the same percentage as America's middle and upper-middle classes.

***SNIP

2. Wealth: Trillions in Financial Gains, Zero Tax

America has gained $16 trillion in financial wealth over the past five years, with 80-90 percent of that gain going to the richest 10%, for many of whom productive labor may have been limited to checking their online portfolios. America is gaining in wealth because of technological infrastructure and a deregulated financial industry that uses the technology to capture most of those gains.

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3. Financial Transactions: Trillions in Speculative Purchases, Zero Tax

As Forbes notes, the hundreds of trillions of dollars of speculative financial transactions constitute "a massive financial accident waiting to happen, yet again."

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4. Subsidies: Alms for the Rich

About two-thirds of nearly $1 trillion in individual "tax expenditures" (deductions, exemptions, exclusions, credits, capital gains, and loopholes) goes to the top quintile of taxpayers.

[Nye Bevan]

1. The mortgage interest deduction is one of the biggest examples.

Hugely benefits the rich, but rent is not deductuble for those at the bottom. We should get rid of this just as the UK did years ago.

[JDPriestly]

7. The mortgage interest deduction is limited.

While the amount you can deduct still seems unreasonably high, here is an explanation which, I assume, is still accurate. (But then, the internet article is not dated so it could be wrong.)

You may not deduct interest on more than $1,000,000 of home acquisition debt for your main home and secondary residence. Home acquisition debt means any loan whose purpose is to acquire, to construct, or substantially to improve a qualified home. The limit is reduced to $500,000 if you are married filing separately.

For example, you borrowed $800,000 against your primary residence and $400,000 against your secondary residence. Both loans were used solely to acquire your residences. The loan amounts add up to $1,200,000. Since your loan amount exceeds the $1 million limit for home acquisition debt, your mortgage deduction is limited. Let's say both loans have a fixed interest rate of 6% and your total interest paid for the year was $72,000. You would only be able to deduct $60,000, which is the interest on the first $1 million of home acquisition debt. Use the worksheet on page 9 of Publication 936 to calculate your allowable mortgage deduction.

Home Equity Debt
You may not deduct interest on more than $100,000 of home equity debt for your main home and secondary residence. Home equity debt means any loan whose purpose is not to acquire, to construct, or substantially to improve a qualified home, or any loan whose purposes was to substantially improve a qualified home but exceeds the home acquisition debt limit. The home equity debt limit is reduced to $50,000 if you are married filing separately. Your deduction for home equity interest may be reduced even below the $100,000 limit if your indebtedness exceeds the fair market value of your home. See the "home equity debt" section of IRS Publication 936.

More

http://taxes.about.com/od/deductionscredits/a/MortgageDeduct_2.htm

The deduction only applies to your home and a second home. The super-rich probably own more than two homes. They may own investment properties, for example. Whether they may be able to deduct the cost of interest as a business expense, but I do know.

More from the IRS here.

http://www.irs.gov/publications/p936/ar02.html#en_US_2013_publink1000229991

I'm not giving advice. I'm just pointing out that the very, very rich people discussed in the article are not getting a whole lot richer because of the home mortgage deduction. That deduction is intended to help middle and low income people buy houses. Unfortunately, encouraging home ownership is no longer a high priority in our country. Home ownership is the basis for a strong middle class. And maintaining the strength of the dwindling middle class is about the lowest priority in our government at this time in spite of all the rhetoric. The Republicans think that the wealthy are middle class. They aren't. They are rich.

[reformist2]

2. The fact that only their $5 trillion in income is taxed, and not their $50 trillion of wealth.

[JHB]

3. Some home-grown charts illustrating point #1:

Usually when focusing on income taxes in the past the focus is on what the top marginal rates used to be -- over 90% in the 1950s, 70% in the 60s and 70s, even 50% for most of Reagan's term. What may be more significant than the change in rates is the change in structure -- the distribution of the brackets.

I have to leave at the moment so I can't give full descriptions right now, but chew on these:

Number of tax brackets (1913-2013), and the number of brackets only affecting taxable income over $250,000 and $500,000 (adjusted to 2013 dollars, based on 'Married, filing jointly' category).

Notice how the number affecting high incomes crashes during the Reagan years, and is never restored to anything resembling what came before it.



This one shows the tax bracket ranges (in 2013 dollars) from 1941-2013. I don't have one for the full history yet because for stretches during and after WW1 and during the Depression the top brackets reached into the equivalent of tens of millions, and I'm still working on presenting that without dwarfing everything else. So be advised, looking at the full range makes those brackets in the 1950s look like pikers.




This one is still a work in progress, and also leaves out years with brackets in the 10s of millions. This one attempts to show the show the bracket structure in different years side-by-side. One from the Roaring Twenties is there to show that period, and again this omits years that would turn everything else into blips on the bottom axis. Most of the attention is on the changes during and after the Reagan administration, but the 1955 and 1965 brackets are there for comparison.




To paraphrase Leona Helmsley, progressive taxation is now for little people.

[Victor_c3]

8. Wow, thanks for taking the time to put something like that together!

Decent graphics and charts are the best and easiest ways to convey points.

When I had to read a lot of scientific journals, I usually would peruse through the charts and graphics to get the gist of what was going on. If something really looked relevant, I'd dive in deeper, but a well made chart with a descriptive caption underneath can do wonders to getting your point across.

[JHB]

9. Thanks. I first started things like this during the debate over the high-end tax hike

I knew that rates had been much higher at the high end, but didn't really have a clear picture of all the parts. I could find some of the information I was looking for, but not in a way I could wrap my head around. And, much like you describe, it you want to see a pattern in the data, graph it.

You can find the primordial version here:
http://www.democraticunderground.com/1002400229

I've been revisiting it lately, and redoing them with better, more understandable layout. I can't really devote much time to it, but I'm plinking away, and getting better at finding ways to show just how radically the tax structure changed.

If you just say that in 1955 the top rare was at over 90%, people say "OMG, I wouldn't want to pay 90%!" But if you present that in a way that shows that the high rate was on income that was up in the stratosphere, that mutes it a bit. And it lets you concede "OK, 90% was too high. But ya'think maybe we overshot a bit? Can we get a spread that looks more like during the Cold War than now? Just lower the numbers?"

But, of course, that was the whole reason for the Reagan cuts in the first place: to mildly prune income taxes in the low- to middle- ranges, and take chain-saws to them at the high end.

[Sirveri]

11. The 90% bracket does not pay 90% though.

As you know since you've clearly seen the same data sources I have, 1950's saw 91% or 92% top tier brackets.

However this was only applied to income earned ABOVE that tier. People always seem to confuse it and think that simply earning 1 dollar more will push them to pay 90% of their total income, when in reality they would pay 90 cents on that dollar, and then whatever else they owed on the amounts under that point. The purpose of the brackets is to function as a wage cap via taxation. Sure, you can pull more than 4 million a year, but why bother when you'll only see 10% of it?

Assuming a tax bracket system of:
00% 0-10k
10% 10k-25k
20% 25k-50k
30% 50k-100k
40% 100k-200k
50% 200k+

Max burden per step would be:
0, 1.5k, 5k, 15k, 40k.

Meaning that if you earned exactly 100k, you would pay 21.5k which is a 21.5% tax burden, dramatically lower than the 30%. That's because you pull out the tax burden for each step, until you reach your tier, then tax the remainder at that bracket rate. Explaining this to people with low math literacy however, is difficult, hence when people hear about tax brackets jumping they think it's dramatically worse than it really is. If you explain that OMG I don't want to pay 40% for earning 101k and then explain, well you'd actually only pay 21.5k and another 400 dollars, for a tax burden of about 21.7% NOT 40%, well... you can't, because for some reason that's too complicated for most folks to follow. If we actually had a legitimate party that was actually willing to raise taxes to their proper levels (income cap levels) and could actually figure out a way to message this so regular people could figure it out and digest it (sound bite sized), we could see real change.

Doubt it will happen though. Oh well, too bad so sad. Love talking the numbers though.

[JHB]

13. Right. That's a point I'm trying to get across in that last one...

...that the rates only apply to particular ranges, not the whole thing.

It's not too complicated, it's just that nobody takes the time to make that distinction clear, in large part because of the interests that find the conflation very useful in limiting talk of raising taxes at the high end.

Trying to figure out ways to message this is one of the reasons I make these things in the first place. If people can't see something because a wall is in the way, make ladders and steps for them.

[Sirveri]

14. Might be best to put the top tier cap % above the bracket

After all, they pay that much on income above that point, and there isn't an upper bound.

Another might be an adjusted tax rate chart, where you took the brackets, and then put the cumulative tax rate at the end of each bracket to show that it's actually lower... I dunno. Things start getting confusing once we start adding payroll tax back in since OASDI stops around 120k but UI and Medicare keep going.

[JHB]

15. If I understand your suggestion correctly, that's exactly what I'm already doing...

...in the third chart by having the bracket color fade out upward and show the rate rotated 90% accompanied by an upward pointing arrow. Maybe I'm misunderstanding you at some point?

As for your other suggestions, I'd like to see things like that too, but I'll have to leave those to someone who has a better grounding in all the factors. These things need to be kept clean, simple, and clear, so I prefer to limit the number of balls I try to juggle in any one of them. All of them are effectively works in progress. The only one I'd consider (mostly) complete is the middle one, and even that needs a text box making the point that It's for taxable income, after all legal deductions and credits have been accounted for.

Still experimenting with what works & clarifies vs what clutters and confuses.

[adirondacker]

16. Nicely done! Thanks for posting!.nt

[SamKnause]

4. Cheating you and me.

Aided and abetted by our corrupt government; all branches !!!!

6. Bailouts using taxpayers dollars.
7. Borrowing money at 0.25 interest rates. Oh how I wish my mortgage interest rate was 0.25 !!!
8. Underpaying the most productive workforce on the planet.
9. Buying our politicians.
10. Writing our legislation.

On and on and on.

[JDPriestly]

6. +1000

[ReRe]

5. Marking to come back to later...