# Why is it that the super-rich are given breaks? **URL:** \ **Category:** In My Humble Opinion\ **Created:** [February 23, 2012, 1:11pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723 "2012-02-23T13:11:27Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![may\_be\_ignorant](https://avatars.discourse-cdn.com/v4/letter/m/c5a1d2/32.png) [@may\_be\_ignorant](https://boards.straightdope.com/u/may_be_ignorant)\ **Post date:** [February 23, 2012, 1:11pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723/1 "2012-02-23T13:11:27Z")
> **[Opinion | Stop Coddling the Super-Rich (Published 2011)](https://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html?_r=2)** > > We mega-rich should not continue to get extraordinary tax breaks while most Americans struggle to make ends meet. Tax breaks, for example. In the above article he states on numerous occasions that he is taxed a lot less than he should be, and that many men wealthier than him pay even less. Why? ---
**Author:** ![Dewey\_Finn](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dewey_finn/32/4222_2.png) [@Dewey\_Finn](https://boards.straightdope.com/u/Dewey_Finn)\ **Post date:** [February 23, 2012, 1:25pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723/2 "2012-02-23T13:25:35Z")
Reported for forum change. ---
**Author:** ![samclem](https://avatars.discourse-cdn.com/v4/letter/s/a9a28c/32.png) [@samclem](https://boards.straightdope.com/u/samclem)\ **Post date:** [February 23, 2012, 1:29pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723/3 "2012-02-23T13:29:17Z")
Moved from General Questions to IMHO. Opinions will occur. **samclem** , Moderator ---
**Author:** ![Shodan](https://avatars.discourse-cdn.com/v4/letter/s/9f8e36/32.png) [@Shodan](https://boards.straightdope.com/u/Shodan)\ **Post date:** [February 23, 2012, 1:29pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723/4 "2012-02-23T13:29:27Z")
Because capital gains taxes are lower than income taxes, so as to encourage investment. Regards, Shodan ---
**Author:** ![isaiahrobinson](https://avatars.discourse-cdn.com/v4/letter/i/85e7bf/32.png) [@isaiahrobinson](https://boards.straightdope.com/u/isaiahrobinson)\ **Post date:** [February 23, 2012, 1:30pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723/5 "2012-02-23T13:30:01Z")
The main answer is that the super-rich often derive a lot of their income from investments, and investments are currently taxed at a much lower rate than regular income. “Capital gains” taxes are much lower than federal income taxes, for instance. The argument in favor of this set-up is that you want to encourage people to invest as far as possible: let the “job creators” create jobs by investing, as Republicans like to say. Others, like Buffett does in that article, argue that higher investment taxes would actually have little effect on jobs or investment and that it’s actually just a way of benefiting the super-rich. There’s decent arguments both ways, although George W. Bush cut the capital gains tax quite significantly in 2003 and the beneficial effects on the economy were not exactly self-evident. The more egregious version of this, which Buffett also mentions, is the “carried interest” tax break. It allows the managers of private investment funds, who take a percentage of the returns on the investment as their payment, to treat that income as if it were an investment. However, they’re not investing their own money; they’re just managing other people’s investments, and it’s very tough to defend it as anything but a sweetheart deal. This is the main reason Mitt Romney’s income was only taxed around 14%, for instance, as manager of Bain Capital. There’s other less significant reasons too: the Bush tax cuts lowered the top rate of federal income tax, payroll taxes are not progressive, there are other tax breaks and accounting maneuvers to optimize tax avoidance, and a lot of the very rich invest their money in low-tax jurisdictions like the Cayman Islands. But those things are less important overall: if you want to know why some of the super-rich pay lower tax rates than their secretaries, the reason is because their income is being treated as an “investment return” rather than as “income”, for better or for worse. ---
**Author:** ![madmonk28](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/madmonk28/32/20811_2.png) [@madmonk28](https://boards.straightdope.com/u/madmonk28)\ **Post date:** [February 23, 2012, 2:24pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723/6 "2012-02-23T14:24:11Z")
It is interesting that defense of lower tax rates for capital gains has become such a cherished belief of the modern GOP, when Ronald Reagan felt that capital gains should be taxed more like income from labor and one of his tax reforms was to raise the tax rate on capital gains so that they were taxed more closely to labor taxes. Regards, Madmonk28 ---
**Author:** ![TriPolar](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tripolar/32/3008_2.png) [@TriPolar](https://boards.straightdope.com/u/TriPolar)\ **Post date:** [February 23, 2012, 2:48pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723/7 "2012-02-23T14:48:24Z")
The reason the rich get breaks is that they’re rich and they can buy anything they want, including tax laws. The economic justifications are pure BS. There are just as many valid economic reasons to raise taxes on the rich or implement income neutral tax laws. Obviously the people who can afford to bribe politicians will get their way. ---
**Author:** ![may\_be\_ignorant](https://avatars.discourse-cdn.com/v4/letter/m/c5a1d2/32.png) [@may\_be\_ignorant](https://boards.straightdope.com/u/may_be_ignorant)\ **Post date:** [February 23, 2012, 2:49pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723/8 "2012-02-23T14:49:33Z")
“Internal Revenue Service data show that in 1992, the effective federal income tax rate on the well-off was 26 percent. Today, after two tax cuts under George W. Bush, the effective rate is about 17 percent.” from [http://blogs.reuters.com/gregg-easterbrook/2011/09/15/why-we-need-to-increase-taxes-on-the-rich/](http://blogs.reuters.com/gregg-easterbrook/2011/09/15/why-we-need-to-increase-taxes-on-the-rich/) What does this mean, and what defines “well off?” ---
**Author:** ![charmstr](https://avatars.discourse-cdn.com/v4/letter/c/53a042/32.png) [@charmstr](https://boards.straightdope.com/u/charmstr)\ **Post date:** [February 23, 2012, 3:14pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723/9 "2012-02-23T15:14:59Z")
My wife, who designs, builds and repairs high end jewelry explained it to me once. She said, “Rich people expect to get shit for free and there’s always somebody there to give it to them.” ---
**Author:** ![Anaamika](https://avatars.discourse-cdn.com/v4/letter/a/5f9b8f/32.png) [@Anaamika](https://boards.straightdope.com/u/Anaamika)\ **Post date:** [February 23, 2012, 3:38pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723/10 "2012-02-23T15:38:15Z")
> [@TriPolar](#): > > The reason the rich get breaks is that they’re rich and they can buy anything they want, including tax laws. The economic justifications are pure BS. There are just as many valid economic reasons to raise taxes on the rich or implement income neutral tax laws. Obviously the people who can afford to bribe politicians will get their way. This is it exactly. I don’t know if the economic justifications are pure BS, but whether they are or not is pretty moot. When you are in a capitalistic society, only the rich people really win, and they get anything they want. ---
**Author:** ![Thudlow\_Boink](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/thudlow_boink/32/320_2.png) [@Thudlow\_Boink](https://boards.straightdope.com/u/Thudlow_Boink)\ **Post date:** [February 23, 2012, 4:43pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723/11 "2012-02-23T16:43:23Z")
Haven’t you ever heard of the Golden Rule? No, not _that_ “Golden Rule”—the one that says “He who has the gold, makes the rules.” > [@Anaamika](#): > > When you are in a capitalistic society, only the rich people really win, and they get anything they want. Isn’t this true for _all_ societies? Why restrict it to just capitalistic ones? ---
**Author:** ![Hampshire](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hampshire/32/4887_2.png) [@Hampshire](https://boards.straightdope.com/u/Hampshire)\ **Post date:** [February 23, 2012, 5:04pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723/12 "2012-02-23T17:04:14Z")
> [@TriPolar](#): > > The reason the rich get breaks is that they’re rich and they can buy anything they want, including tax laws. The economic justifications are pure BS. There are just as many valid economic reasons to raise taxes on the rich or implement income neutral tax laws. Obviously the people who can afford to bribe politicians will get their way. No need for the rich to bribe the politicians when the politicians are the rich. Why are the super-rich given breaks? Because they write their own rules. And who is supposed to keep them in check? The middle class? By doing what? Voting for the rich Republican or the rich Democrat? ---
**Author:** ![Tom\_Tildrum](https://avatars.discourse-cdn.com/v4/letter/t/e95f7d/32.png) [@Tom\_Tildrum](https://boards.straightdope.com/u/Tom_Tildrum)\ **Post date:** [February 23, 2012, 5:12pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723/13 "2012-02-23T17:12:19Z")
> [@Shodan](#): > > Because capital gains taxes are lower than income taxes, so as to encourage investment. THhe other reason is that investors often have some control over whether or not to sell an asset and realize a capital gain, whereas ordinary income is less flexible – generally, it accrues when you get paid. A higher capital gains rate can lead people to be more reluctant to realize a gain, which means there will be fewer taxable events. At some point that means that raising the rate will lower the total revenue from the tax. The revenue-maximizing rate for capital gains is thus likely to be lower than the revenue-maximizing rate for ordinary income. That’s not to say that the current level is correct or not, but there is a theoretical justification for considering a lower capital gains rate to be a societal benefit overall. ---
**Author:** ![TriPolar](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tripolar/32/3008_2.png) [@TriPolar](https://boards.straightdope.com/u/TriPolar)\ **Post date:** [February 23, 2012, 5:22pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723/14 "2012-02-23T17:22:14Z")
> [@Tom\_Tildrum](#): > > That’s not to say that the current level is correct or not, but there is a theoretical justification for considering a lower capital gains rate to be a societal benefit overall. Lower than what? ---
**Author:** ![Rachellelogram](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/rachellelogram/32/8689_2.png) [@Rachellelogram](https://boards.straightdope.com/u/Rachellelogram)\ **Post date:** [February 23, 2012, 5:39pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723/15 "2012-02-23T17:39:06Z")
> [@TriPolar](#): > > Lower than what? Absolute zero. ---
**Author:** ![Tom\_Tildrum](https://avatars.discourse-cdn.com/v4/letter/t/e95f7d/32.png) [@Tom\_Tildrum](https://boards.straightdope.com/u/Tom_Tildrum)\ **Post date:** [February 23, 2012, 5:47pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723/16 "2012-02-23T17:47:52Z")
> [@TriPolar](#): > > Lower than what? The tax rate on ordinary income. Sorry. ---
**Author:** ![handsomeharry](https://avatars.discourse-cdn.com/v4/letter/h/e9c0ed/32.png) [@handsomeharry](https://boards.straightdope.com/u/handsomeharry)\ **Post date:** [February 23, 2012, 7:30pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723/17 "2012-02-23T19:30:37Z")
> [@may\_be\_ignorant](#): > > “Internal Revenue Service data show that in 1992, the effective federal income tax rate on the well-off was 26 percent. Today, after two tax cuts under George W. Bush, the effective rate is about 17 percent.” > > from [http://blogs.reuters.com/gregg-easterbrook/2011/09/15/why-we-need-to-increase-taxes-on-the-rich/](http://blogs.reuters.com/gregg-easterbrook/2011/09/15/why-we-need-to-increase-taxes-on-the-rich/) > > What does this mean, and what defines “well off?” My question is What defines “Internal Revenue Service” data. Sounds like BS to me, And, what is meant by “Effective…rate”? ---
**Author:** ![TriPolar](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tripolar/32/3008_2.png) [@TriPolar](https://boards.straightdope.com/u/TriPolar)\ **Post date:** [February 23, 2012, 7:40pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723/18 "2012-02-23T19:40:19Z")
> [@Tom\_Tildrum](#): > > The tax rate on ordinary income. Sorry. Then what happens when the tax rate on ordinary income is lowered. Something also supported by economic principles? I’m not jumping on your statement, it’s just part of the political game to refer to rates in relative terms, which rarely has any true economic benefit because someone is always in favor of lowering any tax. Someone mentioned Reagan before who was more of a tax fairness guy than he gets credit for. It was George Bush the First who promoted the idea of an offset for capital gains once the ordinary income rates had been lowered. Unlike the Bush’s and their ilk, Reagan had actually earned some money in his life by working, and I think his idea of tax fairness was to eliminate very high rates for the rich, not give the rich more favors on top of that. ---
**Author:** ![puddleglum](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/puddleglum/32/137_2.png) [@puddleglum](https://boards.straightdope.com/u/puddleglum)\ **Post date:** [February 23, 2012, 8:03pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723/19 "2012-02-23T20:03:57Z")
Labor has a different price elasticity than capital so it is more efficient to have higher taxes on labor than capital. The point of taxes is not fairness but to maximize revenue with the smallest distortion on economic activity. Low taxes on labor leave money on the table which is something governments are loath to do. High taxes on capital distort economic activity and will end up raising less money because the inflection point on the Laffer curve for capital taxes is so much less than it is for labor taxes. If it makes you feel any better Buffett owns one third of Berkshire Hathaway which pays corporate tax so his actual tax rate is much higher than his personal rate. Because of his lifestyle the burden of his tax rates mostly falls on poor african children, so if you believe in income redistribution you would like him to pay as little taxes as possible. Reagan made his money acting in film and on television, Bush made his wildcat oil drilling, both of which count as working in my mind. ---
**Author:** ![TriPolar](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tripolar/32/3008_2.png) [@TriPolar](https://boards.straightdope.com/u/TriPolar)\ **Post date:** [February 23, 2012, 8:08pm UTC](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723/20 "2012-02-23T20:08:30Z")
Bush didn’t do any drilling. He was a money and influence player. [Next page](https://boards.straightdope.com/t/why-is-it-that-the-super-rich-are-given-breaks/613723.md?page=2)