Monday, June 12, 2023

Why don't the rich pay more in taxes?

The graph shows that though the top marginal income tax rate has dramatically changed from 15% in 1913 to 37% today (marked by a blue line, left scale), but the share of taxes paid by the top 1% has not (red line, right scale). Here's why:
“Rich people are different than we are,” Laffer told The Epoch Times. “They can change the location of their income, they can change the volume of their income, they can change how many hours they work, they can change the composition of their income—how much of it is capital gains and how much of it is ordinary income. They can also change the timing of their income—things that normal people don’t think of, but rich people do.
UPDATE:  Loopholes are also available to the wealthy. Sec 1202 is used by wealthy to avoid tax up to $10 million. They put C Corp PE investments in multiple trust accounts to avoid $10 million multiple times. The carried interest is another unfair option. If the working class had the same tax rates as PE, they would have more money to invest in these funds. Shouldn’t everyone have the same opportunity to invest? We need lower tax rates for the working class so they have more opportunities to invest like the wealthy.
But these are pre-tax dollars.  After taxes and transfers, the share of the top 1% has not changed much, at least since 1960, plotted below (black line, from earlier post).

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