It Pays To Be Rich
By Justin Gardner | Related entries in Economy, MoneyI believe it’s debateable whether or not the first round of tax cuts was a giveaway to the rich. Personally, I think it was, and the administration’s intellectual dishonesty about the “average” tax cut was laughable. However, I think the second round of tax cuts were transparently targeted for the rich investor class. If you disagree, I’d like to hear your arguments. But save them until you read the whole post because a couple things may just change your mind.
So anyway, how much did the rich gain after the second round of cuts were passed? Oh boy.
¶Among taxpayers with incomes greater than $10 million, the amount by which their investment tax bill was reduced averaged about $500,000 in 2003, and total tax savings, which included the two Bush tax cuts on compensation, nearly doubled, to slightly more than $1 million.¶These taxpayers, whose average income was $26 million, paid about the same share of their income in income taxes as those making $200,000 to $500,000 because of the lowered rates on investment income.
¶Americans with annual incomes of $1 million or more, about one-tenth of 1 percent all taxpayers, reaped 43 percent of all the savings on investment taxes in 2003. The savings for these taxpayers averaged about $41,400 each. By comparison, these same Americans received less than 10 percent of the savings from the other Bush tax cuts, which applied primarily to wages, though that share is expected to grow in coming years.
¶The savings from the investment tax cuts are expected to be larger in subsequent years because of gains in the stock market.
And considering that I think it’s fairly safe to say that the majority of the rich are that way because of their investments and not because of any actual labor they do, this sentence stuck out for me…
A result is that the wealthiest Americans now pay much higher direct taxes on money they work for than on money that works for them.
It wasn’t that way before. Actually, the tax rates for investments were 39.6% for dividend income (the same as the highest tax bracket) and 20% for investment income. Now both of those numbers are 15%.
But the upsides. What about the upsides? More investing in this country. More investing in general. It could be, but then again, it has a chance to have the exact opposite effect:
However, the Congressional Research Service, an arm of Congress that analyzes issues, concluded in a January report that lower taxes on investment income may translate into lower savings because people need fewer investments to earn the same after-tax income. In another report, the research service showed how lower taxes on investment income can encourage investment outside the United States, creating jobs, but not for Americans.
A lot of people call the taxation issue class warfare. You know what? They’re right. And the middle and lower classes are losing the war in a big way. Because for every dollar that goes back into an investor’s pocket, it represents a dollar not being spent on making our public school systems better or any number of programs that help the poor, disabled and barely making it. And what bugs a lot of Democrats is that this is an issue the rich can easily afford to lose, but they simply won’t do it. Tax cut after tax cut is ushered in, while social programs that benefit the many are being starved, beaten and killed.
Maybe it’s time we start adopting and championing policies that redefine what it means to be “rich” as a nation, instead of pushing tax cuts that we couldn’t and still can’t afford.
This entry was posted on Wednesday, April 5th, 2006 and is filed under Economy, Money. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
April 5th, 2006 at 8:22 pm
My first observation: $50,000 is 5% of $10,000,000.
April 5th, 2006 at 8:46 pm
I always thought that if they were serious about the tax cuts being meant to encourage job producing investment they would have made them targeted so that the break wouldn’t be received for investing in facilities in Singapore or Bangalore.
April 6th, 2006 at 1:16 am
It seems to me that a cut in the tax rate is not the same as a cut in tax revenue. Better economic skills than mine are required to accurately forecast the result, but I understand that cuts in tax rates tend to be positive for the economy as a whole and can result in a greater total tax revenue. If the economy benefits, there will be more government revenues from which needy people can benefit, not less.
In any case, if investment has become more profitable because of tax rate cuts, then more money will be invested - that’s evident. While a reduction in savings may follow, why the hell not? Why save money when I can make better interest from investing it instead?
WRT your remark that the rich are that way because of their investments, not because of the labor that they do - where do you suppose their investments come from? Some people inherit money, but most wealth people make their money. Once made - through labor, I should point out - they can invest it, and if their investments do well, it is because they have been either consistently lucky (do you buy that?) or because they have applied knowledge and effort to their investments - which translates as skilled labor.
April 6th, 2006 at 8:02 am
My name is Justin Gardner and I am a Marxist.
Hi, Justin. :)
Getting over the denial is the first step. When you find your higher power, you will be making true strides.
April 6th, 2006 at 9:09 am
The tax code does favor the wealthy. My favorite is that you can deduct mortgage interest ofr your primary residence. Well, the more expensive your house, the more mortage interest you paid so the more you can deduct. Without getting into specific numbers, a family making $150k a year with a big house could very likely pay a lower percentage of their income in taxes than a family making $80k a year that is renting.
And that’s just one way wealthier people can game the tax system.
Don’t get me wrong, I’m not concerned with creating a tax code that “progressively” redistributes wealth away from the wealthy in order to provide more services to the poor. I am, however, very concerned with creating a more fair tax code.
The middle class gets burned under the current system. The tax code is full of breaks for the wealthy at the expense of the middle class who not only don’t have the level of income required to trigger the breaks (i.e. a big mortgage or investment income) but also don’t have the fancy accountants who can exploit the loopholes.
The middle class deserves a more fair tax system. “Tax reform” has unfortunately become a code word for “give more money to the rich,” but real tax reform would benefit the middle classes most.
April 6th, 2006 at 9:14 am
Regarding the first wave of the Bush tax cuts, refer to the following charts:
For percentage of total tax revenues recieved based on economic class:
http://www.optimist123.com/.shared/image.html?/photos/uncategorized/taxpctfedtotiit.gif
For percentage of Americans’ income paid out to the government based on economic class:
http://www.optimist123.com/.shared/image.html?/photos/uncategorized/taxpctagi.gif
For the overall effect the tax cuts have had on our economy:
http://www.optimist123.com/.shared/image.html?/photos/uncategorized/deficittrend200603.gif
The richest 1% contribute a higher percentage of total tax revenue to the American federal government than in any other industrialized nation in the world. When you look at the charts you realize the situation is not doom and gloom, nor highway robbery for the lower classes. Everyone benefitted from the tax cuts rather proportionately, and the result will be a balanced budget in 2008 or 2009.
April 6th, 2006 at 9:15 am
can someone teach me how to do a hyperlink? =P
(and a smiley face!)
April 6th, 2006 at 9:38 am
Yeah, DAMN those rich.
How dare THEY, who MAKE MORE MONEY, get bigger savings when the RATE goes down.
Why, its almost as if when you make 100,000 and save 10% you save 10 times as much as when you make 10,000 dollars and save 10%.
AMAZING.
Taxes are money the government takes from you at gunpoint to redistrubute elsewhere. To make it sound as if the rich are unduly benefitting from money they stole is ridiculous, they EARNED the money and therefore should be free to use it.
Why should the rich have to foot the bill for everyone else? Why does success have to be punished?
The middle class benefit the most from tax rate reductions, they have more money in their pocket that isn’t being redistributed to the bottom of the barrel that just leeches off the system.
The public school system is a failed system, throwing more money at into a failed system does not fix the system, it just creates a cash vacuum. And of course, the next time it comes up and the system is still a failure, we say “we need more money” and all of a sudden we start going after the rich again? Why? Its easy to blame the rich for not paying out the dough, its hard to actually do something about the failed system.
April 6th, 2006 at 10:15 am
Brian, frankly, your comments are getting tiresome. They’re hacky and they very rarely accurately address the points I made in an earnest way, besides parroting Republican talking points. If you want to comment here, then do so in a spirit of genuine debate. This Coulter routine is not welcome.
Same for you DP. I know you’re just trying to push my buttons and I’ve warned you about your inflamatory comments before. And how do I put this…well…both you and I know why I’ve been more lenient with you, so please Join the coversation and quit throwing darts at me.
April 6th, 2006 at 10:34 am
So allow me to get this straight:
We cannot afford to lose money to programs when the government already took money out of our pockets to pay for those programs in the first place. Therefore, you demand more be taken away from people and siphoned to goverment programs whose issues stem deeper than financing.
In other words, we CAN afford to have our money mismanaged by the government, but we CANNOT afford to keep the money we earned in the first place. Whatever you say.
You contribute to a political website proclaiming to be moderate, the idea that you will not face opposing viewpoints from those either rightward or leftward of you is therefore ridiculous. Moreover, whether they are “Republican talking points” or not is irrelevant, unless of course you interpret any Republican point as wrong simply by the fact Republicans use it.
Shifts in the market affect all investors, if you have the same securities as the rich you will get the same gain or loss as they do as a percentage. However, let us assume we do redistribute all this wealth. Do you honestly no anybody who would spend that money on investment on securities rather than booze, cigarettes, and a big gulp down at Snucky’s? Poverty itself is not the problem, people mismanaging their funds is. It is better to have limited funds and good sense then unlimited funds and poor sense.
April 6th, 2006 at 11:57 am
I think it’s debatable at best to say that tax cuts for the wealthy are resulting in better economics for the country. Those of you claiming that they are great, and that the budget will be balanced by 2008 or 2009? I’m sorry, but it seems like you all might be on drugs.
By the way, do any of you make that much money, or even close to that much money? I’m guessing you don’t, and you never will, so I’m wondering why you would be defending the people that do.
Politicians and “republicans (with and without money)” have been making these “trickle down economics” arguments for the past 20 years. I’m wondering when we’re actually going to see the fabled benefits from this theory.
You call can slam poor people all you want (and no, they don’t all spend their money on booze and cigarettes for God’s sake), but it is true that the middle class, which all of us probably are a part of, suffers the most when we give these tax cuts. And, the reason why we never see results from higher taxes and economic redistribution, in my opinion, is that some other people come into power and reverse it all by giving tax cuts and spending recklessly (ahem . . . Bush administration for example). Clinton had us close to being in the black by the time he left, and look where we are now. Balanced budget by 2008. Sure.
April 6th, 2006 at 12:24 pm
How can we have any type of earnest conversation when you characterize taxes as money that the government is taking out of our pockets and mismanaging it? I’m not saying they’re efficient stewards of tax money, but when money goes back into people’s hands, the inevitable is that the same money is cut from somewhere else. In essence, they’re taking money from programs that help the poor and give that money to the wealthy.
Brian, for you to make this claim shows your ignorance of my contributions to this site. I have had, am having and will continue to have discussions with people of all political stripes. But I’m tired of your tone and rhetoric. It’s tiresome and I’m fed up.
But to your points, I have no problem with people making money. None whatsoever. But when tax cuts we can’t afford are being passed through with little regard for those who actually NEED more money, those being the middle and lower class, yeah…I have a problem with that. It’s not only fiscally irresponsible, but it’s actually the class warfare Republicans shout down Dems with all the time. Especially this investment income cut. In other words, it’s completely hypocritical and if there’s anything that a moderate/centrist/reformer hates, it’s hypocrisy.
Ha…do you honestly think that people in the upper class won’t spend that money on booze, cigarettes and a big gulp down at Snucky’s either? What a ridiculous argument and what a disdainful attitude for the middle and lower class. Speaks volumes to where your head is at.
Again, I don’t understand why you post here. Your comments are rarely thoughtful, and often full of rhetoric and partisan hackery. I’m not asking you to change, but I’m completely tired of dealing with it.
April 6th, 2006 at 1:01 pm
“How can we have any type of earnest conversation when you characterize taxes as money that the government is taking out of our pockets and mismanaging it?”
Taking out of pockets? Yes. Mismanaging? Not neccesarily. However, plenty of people manage to succeed in this country through their own hard work and chutzpah. The public school system at current is not effective at even making those in the system literate beyond an 8th grade level. The welfare money that we already dole out has helped a miority of it’s recipients because a blank check with no direction doesn’t help those who don’t spend the money properly. The idea that mere funds can fix these problems is shortsighted.
“I’m not saying they’re efficient stewards of tax money, but when money goes back into people’s hands, the inevitable is that the same money is cut from somewhere else. In essence, they’re taking money from programs that help the poor and give that money to the wealthy.”
There’s a role reversal. The government takes money from you first and then moves it around. Cuttung back taxes doesn’t mean money that the government was holding gets “given back” to people, it means the money is never taken in the first place. SO the question we have to ask is whether the actual problem is the funding or the system. I feel it is the system, FDR started the welfare state decades ago and its an ineffective now as it was then. Its a cash vacuum for public expenditure.
It could be not just that the “rich” have more money, but they are also more skilled at retaining money. If you give 5 people of the same financial status 200 bucks and one saves 150, one saves 100, one saves 50, one spends it all, and one spends it + 50 extra dollars, it doesn’t matter how much you increase the amount you give because the behaviors of the people dictate that funding is not the problem.
“Ha…do you honestly think that people in the upper class won’t spend that money on booze, cigarettes and a big gulp down at Snucky’s either? What a ridiculous argument and what a disdainful attitude for the middle and lower class. Speaks volumes to where your head is at.”
I am a member of the middle class, so I get to bash my own class, its like my family/ Trust me, not everyone spends wisely and those are usually the ones who end up on welfare. Sure it would help if we were all born rich, but even assuming we redistributed EVERY CENT, in 50 years we’d still have rich people and poor people.
April 6th, 2006 at 1:19 pm
Show me statistics claiming the budget deficit is growing. It is possible to increase tax revenues while lowering tax rates if there is more economic growth. Facts make great drugs apparently.
One example here . Another here . Remember this simple equation, Wealth=Technology. Whether you are talking about a computer or a brick, taking raw materials with little or no value and converting them through ideas and labor into an item of greater value is technology. The overall value is represented by currency.
When new technology comes out, it makes the old technology cheaper and more affordable to the poor. It is why the poor in america more-than-likely have cars, cell-phones, color T.V’s, own homes and are obese. 100 years ago, they starved to death in squalid tenement buildings, or had to wait for it to rain in order to take a bath in an abandoned pickle-barrel. The most significant, civilization-changing technology requires huge amounts of investment, which a wealthy entrapreneurial class can bring. Besides, as Brian said, its their money, they earned it, they get to do what they want with it.
America is mostly middle-class, with low unemployment right now. You might feel stress trying to make ends meet, but the quality of life for the average American (including me with my meager wages) is pretty damn good. Go to Bangladesh where haggard 30-year-old widows will beg change from you while suckling their infants if you want to know what real struggle is.
April 6th, 2006 at 2:39 pm
YOU, Justin, are the one who pointed out the “class warfare” aspect of your OWN argument, NOT ME. A second grader can make the connection between class warfare and marxism. It’s not throwing darts, its pointing out the obvious.
April 6th, 2006 at 4:27 pm
Yeah, a second grader…right….sure. Oh yes, and you’re just pointing out the obvious…as you always do. Why is “the obvious” so often inflammatory and sarcastic…hmm…
Listen DP, don’t play coy with me…you know exactly what you’re doing because you consistently do it. Again, I don’t appreciate it. I don’t want to have to deal with this 90% of the time I read a comment from you. It’s not worth my time.
And by the way Brian, good comment. That’s one. Let’s make it a pattern.
However…
I’m sorry, but if the government is cutting taxes, that means they’re deciding to have less revenue coming in from taxes. That means they have to find ways to cut their expenditures. That means that social programs are going to get cut. The whole, “it wasn’t taken in the first place” does not address the reality of the budgetary situation.
And lastly, if you’re so concerned with how people will decide to spend their money, then let’s talk about how the government can incentivize and penalize people who don’t spend their money for certain things like healthcare, etc. But let’s not have the ridiculous discussion about the middle and lower classes spending their money on things they don’t need. The very reality that these people have LESS money means they have to spend their money more wisely and go without things. The rich actually have the means to spend a lot of money, so it follows that they’ll actually spend more money on frivilous luxury items than anybody in the other two groups, right?
April 6th, 2006 at 9:30 pm
As companies replace old-time pension plans with 401K’s, all of us who have one are going to benefit when we retire and start drawing the money out. So I’m pretty happy about the investment tax break even though I’m not wealthy. It’s going to help me stay financially independent when I retire.
As for the question if investment in stocks helps to create more jobs, the answer is absolutely yes. A company’s stock price affects their ability to raise cash and their cost of borrowing. The money is necessary to grow their business which typically either creates more jobs or allows them to maintain the current workforce. It’s a good thing that helps us little people too. Maybe it’s not totally fair to everyone, but get over it. Life ain’t fair period.
April 10th, 2006 at 10:56 pm
Hello everybody, I want to make friend with you. Nice to meet you.