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AZ Progressive

(3,411 posts)
Wed Jan 2, 2013, 03:20 PM Jan 2013

This Deal does NOT raise the taxes of most of the rich

All this thing about raising the taxes on rich Americans is kabuki theater. Much of the rich don't make millions of dollars a year, or even $500,000 a year. Not raising taxes on Americans who make less than $450,000 a year in household income will not affect most of the rich.

From the book "The Millionaire Next Door":

From the Chapter "Meet the Millionaire Next Door":

"Our household's total annual realized (taxable) income is $131,000 (median, or 50th percentile), while our average income is $247,000. Note that those of us who have incomes in the $500,000 to $999,999 category (8 percent) and the $1 million or more category (5 percent) skew the average upward."

This book was made in 1996, so inflation (and the sheer fact that the rich have been getting richer) may mean that these numbers are significantly higher (maybe $300,000 a year for a typical millionaire household), but according to my analysis of wealthy areas in California (using richblockspoorblocks.com which uses Census survey data from 2006 to 2010), a median household income of $150,000 to $250,000 a year (most likely after deductions) is enough to get you into the wealthiest neighborhoods in Los Angeles (including Beverly Hills) and the Silicon Valley.

Why are so much of the rich rich without making a whole lot of money in income? Because most of the rich don't get rich just through regular income, they've accumulated the money over time and especially get a large amount of their money through investments. They buy assets which make them money over time, either through an income stream or by appreciation.


Also, from that same chapter:

"On average, our total annual realized income is less than 7 percent of our wealth. In other words, we live on less than 7 percent of our wealth."

"We have a "go-to-hell fund." In other words, we have accumulated enough wealth to live without working for ten or more years. Thus, those of us with a net worth of $1.6 million could live comfortably for more than twelve years. Actually, we could live longer than that, since we save at least 15 percent of our earned income."


In addition to all of this, because much the rich make much of their money through investments, this income is immune from the raise in income taxes in this deal. The White House and Congress had said nothing about raising the capital gains tax rate.

Obama and Congress have basically done theater and not really raising taxes on much of America's wealthy except the wealthiest of the wealthy that still get get most of their money through "earned" income rather than assets (like, for instance, entertainment millionaires.) Not even the lower end of the top 1% (which make at least $350,000 a year) will be affected. Neither will, perhaps, even much of the top 1%, as shown in this article from forbes:

http://www.forbes.com/sites/leonardburman/2012/01/18/mitt-romneys-teachable-moment-on-capital-gains/

"Virtually every individual income tax shelter is devoted to converting fully taxed income into capital gains. If you can transform $10 million of wages into gains, you can save over $2 million. With that kind of payoff, there is a whole industry devoted to inventing schemes to generate current deductions to shelter the wages and ultimately recoup it years later as lightly taxed gains. "

In other words, much of the rich, including the top 1%, have help in taking advantage of loopholes via tax shelters to convert much of their "earned income" to capital gains, which is still taxed at 15% (plus they don't have to pay for medicare taxes, which is an additional 2.9%). This is in addition to the ones who get much of their income through investments.

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This Deal does NOT raise the taxes of most of the rich (Original Post) AZ Progressive Jan 2013 OP
It should focus on assets, not just income. nt Deep13 Jan 2013 #1
"the 99%" goes up to 500K jberryhill Jan 2013 #2
Sure it does (It raises tax on income, cap gains and dividends) cthulu2016 Jan 2013 #3
Where in the deal does it raise the capital gains rate? AZ Progressive Jan 2013 #5
January 1, 2013 raised the cap gains rate cthulu2016 Jan 2013 #8
Ok, its a 5% tax raise on investments then AZ Progressive Jan 2013 #19
I am fine with taxing cap gains the same as income cthulu2016 Jan 2013 #21
Actually, it's a 33.3% increase in the Capital Gains tax demwing Jan 2013 #23
Read this. See 2nd bullet. JoePhilly Jan 2013 #9
I highly recommend that people read all of that contained in the link Harmony Blue Jan 2013 #12
Thank you. Good info at link. PA Democrat Jan 2013 #17
I'm not understanding the ProSense Jan 2013 #4
You can't target earned income alone to target the rich AZ Progressive Jan 2013 #6
As you should now realize, capital gains went from 15% to 20% jberryhill Jan 2013 #11
Here: ProSense Jan 2013 #14
hmm, capital gains and dividends tax rates are going from 15% to 20% for the rich unblock Jan 2013 #7
I think the point is this Proud Public Servant Jan 2013 #10
So, at this point we are trying to define Harmony Blue Jan 2013 #13
Good question. I don't know. Proud Public Servant Jan 2013 #15
I don't know either Harmony Blue Jan 2013 #18
If I get a vote, wealthy=top 1% in wealth = $8.4 million in net worth or above. stevenleser Jan 2013 #24
The Rich don't make as much money on earned income as one might think AZ Progressive Jan 2013 #16
Wait, the raise in capital gains tax rate ONLY affects those who make more than $450,000 a year AZ Progressive Jan 2013 #20
Depends what you mean by "rich" and by "most". stevenleser Jan 2013 #22
I'll say one more thing though AZ Progressive Jan 2013 #25
 

jberryhill

(62,444 posts)
2. "the 99%" goes up to 500K
Wed Jan 2, 2013, 03:22 PM
Jan 2013

$450,000 for married filers is in the 96th percentile.

For all filers, it is in the 98th percentile.

This deal targets the top 2%. Should "the 99%" slogan have used some other figure, in your estimation?

cthulu2016

(10,960 posts)
8. January 1, 2013 raised the cap gains rate
Wed Jan 2, 2013, 03:38 PM
Jan 2013

Cap gains at 15% were part of the Bush tax cuts that expired.

I believe that in the deal cap gains were set at 20%, up from 15%.

AZ Progressive

(3,411 posts)
19. Ok, its a 5% tax raise on investments then
Wed Jan 2, 2013, 03:57 PM
Jan 2013

Maybe the argument then should be why the rich would still get to pay a maximum rate of 20% while many middle class Americans will now have to pay as much as perhaps 35% in taxes? (your employer matches your payroll taxes, which are now at 7.5%)

cthulu2016

(10,960 posts)
21. I am fine with taxing cap gains the same as income
Wed Jan 2, 2013, 04:08 PM
Jan 2013

and I agree with your general sense that the real *rich* are less inconvenienced by this deal than they ought to be.

ProSense

(116,464 posts)
4. I'm not understanding the
Wed Jan 2, 2013, 03:29 PM
Jan 2013

goal of redefine the rich to people who make $100,000?

That health care law subsidies for low-income Americans end at a little less than half of that.

People need higher incomes, not a redefinition of what makes them rich that takes incomes lower and lower.

Don't consider $250,000 the middle class? Fine, but it's defined as rich in the current debate.

The OP and others seem to want to redefine rich down.

AZ Progressive

(3,411 posts)
6. You can't target earned income alone to target the rich
Wed Jan 2, 2013, 03:36 PM
Jan 2013

You have to do things like eliminate loopholes and deductions that favor the rich, and target capital gains.

 

jberryhill

(62,444 posts)
11. As you should now realize, capital gains went from 15% to 20%
Wed Jan 2, 2013, 03:43 PM
Jan 2013

The rate still penalizes labor, but you seem not to be aware of the increase there.

unblock

(51,973 posts)
7. hmm, capital gains and dividends tax rates are going from 15% to 20% for the rich
Wed Jan 2, 2013, 03:37 PM
Jan 2013

inexcusably lower than their tax rate on labor income, but nevertheless an increase.

Proud Public Servant

(2,097 posts)
10. I think the point is this
Wed Jan 2, 2013, 03:41 PM
Jan 2013

The OP was a bit convoluted, but I think the pooint is this:

The rich don't work, so raising taxes on wages above $400k doesn't touch them.

The rich live off capital gains, BUT the deal struck only raises capital gains on gains above $400k.

Thus, someone who has $5 million in investments, generating an average 7% rate of return in gains and dividends, did not have their taxes go up one penny under this deal (since 7% of $5 million is $350,000).

I think that was the point.

 

stevenleser

(32,886 posts)
24. If I get a vote, wealthy=top 1% in wealth = $8.4 million in net worth or above.
Wed Jan 2, 2013, 04:11 PM
Jan 2013

Just my 2 cents. No pun intended.

AZ Progressive

(3,411 posts)
16. The Rich don't make as much money on earned income as one might think
Wed Jan 2, 2013, 03:50 PM
Jan 2013

Much of the rich make below $450,000 a year in household income, and especially on taxable earned income.

AZ Progressive

(3,411 posts)
20. Wait, the raise in capital gains tax rate ONLY affects those who make more than $450,000 a year
Wed Jan 2, 2013, 04:05 PM
Jan 2013
http://www.washingtonpost.com/blogs/wonkblog/wp/2012/12/31/your-fiscal-cliff-deal-cheat-sheet/

"The tax on capital gains and dividends will be permanently set at 20 percent for those with income above the $450,000/$400,000 threshold. It will remain at 15 percent for everyone else."

So ok, its a tax raise on the top 3% of married couples filing jointly, and the top 0.5% of single filers, for an average of the top 2%. Most people living in rich areas are not making that kind of money. As I've said before, even people in Beverly Hills and other rich areas are on average making only $150,000 to $250,000 a year in taxable household income.
 

stevenleser

(32,886 posts)
22. Depends what you mean by "rich" and by "most".
Wed Jan 2, 2013, 04:09 PM
Jan 2013

Are you measuring rich/wealthy by income or wealth? Do you mean "most" in terms of number of people, or aggregate dollars in income made by those who it affects?

We are definitely taxing the majority of income in the top earners of wage income.

Your points about wealth are spot on though, and that is why I have been calling for a wealth tax for the top 1% in wealth for some time. I think I am going to talk about that on my next show.

AZ Progressive

(3,411 posts)
25. I'll say one more thing though
Wed Jan 2, 2013, 04:33 PM
Jan 2013

Is that its mostly the 1% or even the top 1/10th of 1% that is doing most of the looting of wealth through corruption in this country. If that was the goal, fine, their taxes are being raised by 5% on capital gains and 4% on ordinary income.

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