As Tax Day looms, the wealthiest Americans now pay income tax at less than 17 cents on the dollar, according to a tax policy expert.
That expert, Chuck Marr, says it is “simply not the case” that raising taxes on the wealthiest taxpayers will hurt the economy. Indeed, allowing Bush-era tax cuts expire this year will help the nation take a big step back toward fiscal health, says Marr, the director of federal tax policy at the Center for Budget and Policy Priorities, a Washington think tank.
The federal income tax obligations for the wealthiest 400 people in the country “has declined dramatically,” Marr says in a new podcast.
Marr notes that the IRS analyzes the returns of the top 400 people in the country. The tax collection agency doesn’t publish their names but it publishes all of their economic and income data. To make it into the top 400, a household needed an adjusted gross income of at least $139 million in 2007, he says.
“On a bottom line basis, this elite group pays income taxes at about half the rate they did 15 years ago. They pay income taxes at less than 17 cents on the dollar,” he says. “Moreover, while the incomes of average Americans have stagnated, the incomes of the top 400 have surged, increasing by more than 400 percent over a decade and a half.”
The steep cut in the tax rate faced by top-earning households is largely because the tax rate on capital gains and dividends has been cut sharply and is now far below the top tax rate on income earned by working at a job.
These tax cuts, tilted toward the wealthy, were enacted as signature achievements by President George W. Bush and a Republican-controlled Congress in the early years of the previous decade.
“Very wealthy people make most of their money from capital gains and dividends – and since these are now taxed at a lower rate – their income tax burden has fallen significantly,” Marr says.
Capital gains are taxed at a maximum rate of 15 percent.
“President Obama has proposed to return the rate to 20 percent but this would still be below the 28 percent rate that prevailed under President Reagan,” Marr says. “Dividends are also taxed at a maximum of 15 percent which is far below the 39.6 percent rate of the 1990s.”
The Bush tax cuts are set to expire this year, unless Congress votes to extend them.
Allowing the tax cuts to continue, even as the federal government funded major wars in Afghanistan and Iraq, helped push the federal government deep into the red — even as Bush inherited a budget surplus from President Bill Clinton.
“The bottom line is that lawmakers need to seek ways to increase revenues. They should therefore allow the Bush tax cuts to expire for this very wealthy population,” Marr says.
Republicans typically argue that would damage the U.S. economy — but that just isn’t true, according to Marr.
“In fact, this wealthy group thrived back in the 1990s when their taxes were set at the same rate they will be at the end of this year,” he says.
Indeed, the 1990s represented the largest peacetime expansion of the U.S. economy in history.
“There is no question in my judgment that raising taxes on the wealthiest people in the country must be a part of putting our country back on a sustainable fiscal path. It’s going to take more than that – a lot more than that – but that needs to be a part of it,” Marr says.
The publisher of the news site On The Hill, Scott Nance has covered Congress and the federal government for more than a decade.