Hello Accountants and Tax Attorneys of America! I call on you to help me find the answer to my question:
Do the rich pay a tax rate of 15% while the rate for the poor is 35%?
I recently heard this mentioned with the following simple, straightforward justification:
- Income for the rich is primarily returns on investments, also known as “capital gains”.
- Income for the poor is primarily wages, either hourly or salary
- Capital gains are taxed at 15%
- Wages are taxed at 35%
So if these four basic premises are true, it means that we are taxing the people who have the most money the least amount. Then we take the people who have the least and demand a larger fraction of their income. Is this an ethical way to write a tax code?
I have heard people in stock trading and investment circles say that its important to have capital gains tax as low as 15% because the lower rate offers a better chances for working individuals to pull themselves up into a better more secure lifestyle through profitable investing. I’ve also heard that its necessary in order to encourage investment in our markets. I’ve decided that those two statements, while they may be partially true, are in fact baloney!* I think that the main reason capital gains tax is lower is because rich people typically hold more investments than the average worker. A lower capital gains tax rate is more beneficial to the rich citizens of our country, and they coincidentally have more influence over our law makers.
I just did a little reading over at wikipedia to try and check my facts on these tax rates. At first glance, the tax code is not so straight forward. So that it why I’m appealing to tax attorneys and accountants of America. Am I completely off base here? If so, where have I gone wrong? Are my percentages simply a little off while the underlying theme (rich people pay less taxes than workers) is correct? Let’s have an honest debate.
*Baloney, of course, may have at one time been composed of genuine ingredients, but has been so diluted and processed that the end product is unhealthy and promotes cancer.