Those Poor Overtaxed Multi-Millionaires

February 23, 2010

How many hundreds of times have we heard the Republican Party as a whole and a handful of Democrats preach to us how wealthy people are overtaxed at a rate that is too high? How often have we had to listen to the pro-wealthy, pro-corporate, anti-working class news media tell us how the wealthy is being mistreated — tax wise? And to top it all off, we’ve had some of those same people indirectly defending wealthy people who are hiding their money offshore in order to avoid paying taxes. All of this gets a lot of national attention. Why? Because the wealthy folks in the news media see to it. But when facts are published disputing these claims, you will find it only in the lesser known, narrowly circulated, news media. Such is the case this time around.

Although Bloomberg is a well known news source inside the business world, very few outsiders read them. But it is they who published the latest facts on how much taxes wealthy people actually pay. In Top Earners Averaged $345 million in 2007, IRS Says (per year), Rayan J. Donmoyer tells us that those top earners paid only 16.6 percent effective tax rate. He also tells us that their income is up from $131.1 million per year since 2001. So how does their taxes compare to the average incomer? Folks who earn between $40K and $125K per year pay an effective rate between 11 percent and 16 percent, depending upon how many dependents/deductions they have. To get a clear picture of what your effective tax rate is (if you don’t already know) figure it out this year after you file your income tax return. Doing so afterwards takes into account any refunds or additional payments.

Those high tax rate percentages you are constantly reminded of by the pro-wealthy, pro-corporation mouth-pieces are designed to garner sympathy from the average person. For example, a tax rate of 35 percent is often exploited by the defenders of the wealthy. While this may be a conditional truth, it’s not the actual truth. In fact, the 35 percent rate applies to anyone earning more than $372,950 for tax year 2009. But long-term capital gains and qualifying dividends are taxed at only 15 percent. And the latter is where the top earners make their money.

As stated, the defenders are constantly telling us that the tax rate for the wealthy needs to be reduced. But it has already been reduced several times. In 1993 the effective tax rate for those same multi-millionaires was 29.4 percent. But by the time Bush II got finished, aided in part by Bill Clinton under a Republican controlled Congress, it has dropped considerably to today’s rate of 16.6 percent.

The same situation applies to corporations. Republicans are consistently bombarding us with the 39 percent corporate tax rate, which is promoted as the second highest tax rate in the world — and it is. However, the average effective rate in 2007 was only 22.2 percent, and it’s been falling constantly since the late 1990’s (see graph below). In many cases, corporations pay an effective rate of less than 17 percent, while others pay not taxes at all. So the next time you decide to regurgitate those politically biased ideologies, you may want to think about this.


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