50% of earnings sound right? It must vary person to person. What counts as ‘wealthy’?
For any rich person, if you hear of their fortune earned (unless it’s their fortune they currently have) or their annual salary, it’s safe to then divide it in half to get the real number? Like, for instance, if a magazine says Larry David has 200 million in fortune (which it did) then they probably mean after taxes that’s what it’s grown to. But if I read on IMDB that Jim Carrey has earned over 150 million in all his movies from the individual movie salaries they list, I should divide by half to get 75? Is that right?
I’d agree with the idea that if they say how much he has, that’s after taxes, but how much he’s earned, that’s before. From what I’ve seen of complaints on this board and in other places, I’d be kind of shocked if the truly wealthy actually paid as high as 35% taxes, though.
Depends if they report gross or net incomes. In Carey’s instance, I don’t know if that’s his gross or net take.
And in Larry’s instance, he may have tons of investments that he may not get taxed on now but when he cashes in stock or turns over property he may get nailed then. So, in his case, he may be worth 200 mil at this point before he cashes out and some of that 200 mil was already taxed once as income. When your dealing with complex investment strategies and net worth on paper it becomes hard to estimate total tax liability.
35% would be the maximum; many pay substantially less. And for purposes of estimating tax burden, “wealthy” is anything over $392,100 per year. Above that, the maximum is the same, whether you make $1 million a year or $100 million an year.
So rich people- who certainly earn more than 319 thousand a year if they earn in a given year- pay 90,000 plus 35% over the 319? So if Dave Chappelle were to be paid the 50 million up front- which he isn’t- that would come down to
50m
-90thou
-(.35 x (50m-319thou))
leaving 32,521,650 after 17,478,350 had been deducted above. That’s still a ton of money
First off Rich People think about their taxes, they even pay smart people to think about their taxes. Few would pay 35% in Federal Income Tax on all or even any of it.
On the other hand State Income taxes might (I suppose) drive the tax burden to the general one-third level.
Also consider regressive taxes (like the sales tax). Poor People spend every penny they make, and so pay taxes on it. Rich people spend only a part (maybe a small part) on buying stuff, as a result they are hardly touched by the sales tax.
Don’t forget state taxes. Which in California is I beleive 9%. I don’t know about other states. But every election cycle people bitch about California taxes being high and others come a long and say it is about in the middle. It also depends on how the income is generated. Is it ordinary income or is it capitol gains. This gets you pretty close to to about 44% which is pretty close to half.
You’ve got to distinguish between wealth and income. There are very few federal taxes on wealth, local property taxes are probably the only significant wealth tax. So a rich guy with a trust fund might have very little income relative to their wealth. Bill Gates is “worth” ~30 billion dollars, but the vast majority of that wealth is because he owns a big chunk of Microsoft…he doesn’t pay taxes on that unless he sold his shares, then he’d pay capital gains tax. Microsoft pays corporate taxes on profits it has makes over the years, but Bill Gates doesn’t have a big tax bill every time Microsoft stock increases. Bill might be worth 30 billion dollars but he hasn’t paid 30 billion in taxes over the years. But remember that his 30 billion isn’t “real”, since he’d have to sell his shares to get that amount of cash. He couldn’t sell that number of shares at the current stock price because the glut of new shares on the market would depress the price (increased supply, same demand, means lower price), and also because he’s Bill Gates cashing out of Microsoft, that’s going to affect the perception of the value of Microsoft.
You might be interested in some of the links from columns on this topic at The Daily Howler. http://www.dailyhowler.com/dh112404.shtml
or http://www.dailyhowler.com/dh012803.shtml which claims (via Daniel Altman) this breakdown
Top fifth of earners: 19 percent
Next fifth of earners: 17 percent
Middle fifth of earners: 16 percent
Next fifth of earners: 14 percent
Bottom fifth of earners: 18 percent
This includes fed, state, and local. I don’t vouch for it myself, but see no reason to doubt it.
As Tim Noah said in Slate, with clear surprise: “Tax rates are already flat!”
Plus if you want to buy that ferrari and that fancy house, you have to pay the sales tax, the import duties, the gas guzzler tax, all the weird house purchase fees. Then pay the gasoline taxes and property taxes for the rest of your life.
Say you want to buy a $1,000,000 house where I live and intend to live in it for 15 years, south SF Bay Area(usually a modest 3 bedroom with a nice view).
Just an estimate:
House Listing Price: $1,000,000
Approx 1% Property Tax Over 15 Years: $1,150,000
Approx 8% california income tax : $1,250,000
Approx 36% Federal Income Tax : $1,896,000
So the total nominal tax rate is approximately 47.5% on money meant for real estate to be kept 15 years.
As is normal, the rates by quintile in your cites are adjusted based on assumptions and definitions. The second cite compares the table you provided to a more detailed computation that put the lowest earners at a negative tax rate while the highest earners had a 50% rate.
It is a matter of definition. The tax rate is going to be calculated by dividing tax paid by income. What then is a tax and what is income? As a basic example, is the earned income tax credit a form of income or tax reduction? If someone earned $10,000 at the job but recieved $1000 earned income tax credits along with paying $2000 in all other taxes. Possible calculations would be:
Notice is both cases, the person gets the benefit of $9,000 (income less tax). The rates are different based on the definitions of income and tax. Getting to where everyone agrees on the definition and calculation of both tax and income is fairly difficult. There is a lot of political axe grinding going on.
No that’s not difficult at all. If there were no tax at all, the person would get $10,000. Therefore their income is $10,000. In the end they got $9,000. So the tax rate is 10%. It’s exactly that kind of convolution that lets anybody distort the truth about taxation. Every dollar of wealth that is spent is taxed as long as it keeps being spent. The only way to prevent that $1 from turning into $0 in the long run is not to spend it. If the only way something has long term value if it is not spent we have another word for it - worthless. Modern economies run on an illusion of value of money that isn’t really there because of continuous taxation. That’s, IMO, why it’s so difficult to predict them accurately. Too much psychology involved.
In my state, food and clothing are subject to sales taxes. Utilities have their own taxes. Rent isn’t taxed, but since property owners figure their property tax overhead into the rent, it’s not like renters are getting any special deal there, either.
As Paul in Saudi said, rich people have tax advisors. You should investigate phrases such as ‘offshore holdings’, ‘family trusts’ and ‘tax havens’.
‘ROBERT Maxwell was a big crook whose enormous body crashed into the Atlantic on Guy Fawkes Day 1991. Five days later he was given a state funeral in Jerusalem. It is claimed that he left debts of £4.2 billion, lost in a tangled web of financial intrigue through 400 interlocking companies, and on the way he plundered the pension fund of the Daily Mirror, of which he was the owner.’
I’m not trying to argue about how the calculation is done. I only want to point out that the definition of tax and income drive the numbers. On the one hand a respected scholar could say a poor person pays 10% while another calculates 18%. They are both correct based on the definitions.
As a mental exercise, consider whether the following are income:
Food stamps
Rental value of home you own and live in
Appreciation in the value of the home you own.
Appreciation of shares in Google you own.
Unemployment compensation
Social Security benefits
Proceeds from life insurance on deceased spouse.
Interest on bonds issued by your city to build a stadium for local sports team.
Health care benfits provided by your employer
Child support payments from ex-spouse
Alimony received from ex-spouse
Amount saved on rent due to rent control in your city
Honest people can disagree about whether these amounts should be included in income. In abstract theory, these are all income. Only a couple are taxable (at least in part).
Actually, in the U.S. it is taxed at 15% for long term capital gains, with some minor exceptions (certain real estate scenarios may be higher, for example). Unless I’m missing something; I’m not a tax guru, but I’m fairly confident it’s 15% and not 25%.
