I’ve been confused for a while about why some of the people I know seem to be up in arms over the idea of “closing the loopholes” or increasing taxes for the “rich.” But today when I shared a link to an article posted by a friend of mine and she asked me to elaborate on what I said about it, it occurred to me that those who inhabit the Congress of the United States need a more forceful clarification as to why we elected them in the first place. Some seem to have gotten the wrong idea.
You see, it all started when Orrin Hatch said in a speech the other day that the “rich are paying too much in taxes” and that the “poor” needed to take some “responsibility” for lowering the deficit. He supported that statement by saying that “the top 1 percent of the so-called wealthy pay 38% of all income tax, the top 10 percent pay 70% of all income tax and the top 50 percent pay almost 98 percent of all income tax.”
I wanted to pull out a violin and serenade him until I looked at a couple more statistics, like the fact that the top 1 percent received between 21 and 23 percent of all US income in 2007 and the bottom 50% combined earned only 12.3%. Then I got mad.
Note the difference between the words “received” vs. “earned.” That’s where the subterfuge in Mr. Hatch’s argument lies.
I suspect if you looked at Bill Gates’ tax return, you wouldn’t find a W-2. Or if you did, his gross “wages” wouldn’t even compare to the other income “received.” Income that isn’t subject to the graduated income tax most of us struggle with on our 1040s every year.
That top 1% who “received” between 21 and 23 percent probably didn’t “work” for it. It was income, yes, but the tax rates applied come from a different place in the tax code. The part that deals with capital gains, for instance.
The capital gains tax, the death tax, the taxes we’ve battled over in years past apply for most of us fewer than 5 times in a lifetime, or at least it used to. The only time I heard the term “capital gains” growing up was with respect to the sale of a house, and what I assumed would always be true—that there would be some. Gains, I mean. We know how that turned out.
Taxes on capital gains are something like 12% if you’ve owned the asset (house or stock, for instance) for 18 months or more, 18% if you’d owned it for fewer than 18 months, considerably less than the 25-39% tax rates of the past on “earned” income, that money that comes in your paycheck once, twice, four times a month. And here’s the real rub…there’s no social security or Medicare tax unless it’s “earned.”
And the story gets worse. Even if you “earn” more than $107,000 per year, there’s no Social Security tax withheld from the excess. Been that way for a while—I benefited from the law 10 years ago. (By the way, the rank and file Senator like Orrin Hatch makes $165,000, not counting his other income. And on another note, if everyone paid that 6.2% of 100% of their income, no matter how that “in-come” came in, reckon how much that would reduce the deficit?)
Don’t get me wrong. I have no argument with Bill Gates, or the top 1% or even the 10%. If they learned how to play the corporate game, or have leverage to negotiate $17 million severance packages while their companies lay off thousands, or get paid to “manage” those hedge funds made of other people’s money, or were born into wealth…more power to them.
But I don’t feel sorry for them, Mr. Hatch, and the calculation of their “fair share” of responsibility for lowering the deficit is a matter for debate, irrespective of percentages, especially when their income is largely generated by the productivity of “poor” schmucks like me.
Well, it used to be. I have to admit that my weekly unemployment check doesn’t do even a bit for the top 10 percent’s investment portfolios.
But I pay taxes on it and when I find a job, I’ll be glad to pay more if that’s what it takes to solve the problem.
I’m doing my share, Mr. Hatch. Now I’d appreciate it if you would shut up and start doing yours.