Top tax rates plummet even as incomes 'skyrocket'
The world has turned upside down. Over the past few decades, if you were among the richest 400 taxpayers in the United States, the more money you made, the less you paid in taxes. That's the finding of a new report issued by the Center on Budget and Policy Priorities:
The top 400 households paid 16.6 percent of their income in federal individual income taxes in 2007, down from 30 percent in 1995. This decline works out to a tax cut of $46 million per filer in 2007, or a total of $18 billion in tax cuts for these households per year.
That's serious money not available to spend on creating jobs, extending unemployment benefits, providing public education, fixing our broken infrastructure, or transitioning to a clean energy economy.
System rigged to benefit insanely rich
The reason for the decline in the effective tax rate is the top 400 filers earn most of their money (66%) from capital gains and stock dividends - income taxed at 15%, less than half the tax paid on ordinary income. The Republican controlled Congress slashed capital gains taxes in 1997 and again in 2003. The tax on capital gains is now almost half what it was under Ronald Reagan (28%).
The rich are getting richer, too. During the last economic expansion from 2002 to 2007, two-thirds of the wealth generated went to 1% of the population. Even as the incomes of the super rich exploded, they paid less in taxes than teachers, fire fighters, or doctors. In fact, the top 400 filers actually made more after taxes:
Because of the steep reduction in effective tax rates for the top 400 households, their after-tax incomes grew even faster than their pre-tax incomes. Between 1992 and 2007, their average income afterfederal income taxes increased by 475 percent.
The next time you hear a candidate for U.S. Senate claim we can't afford to extend unemployment benefits, COBRA subsidies, or provide aid to cash-strapped states to avoid draconian cuts to education and other public services, think of the 400 richest Americans - in a nation of 300 million - whose income we subsidize every year to the tune of $18 BILLION.
Click here to read the full report from the Center on Budget and Policy Priorities.