(Reuters) – Senate Republicans on Monday blocked President Barack Obama’s “Buffett Rule” legislation, which would have put a 30-percent minimum tax on millionaires, in a debate that is likely to resonate through the November general election.
Democrats, as expected, failed to garner the 60 votes needed in the 100-member Senate to move to a full debate and vote on the bill aimed at getting more tax revenues out of the wealthy.
Obama and congressional Republicans are squaring off this week over the tax hikes for millionaires and a Republican plan to give new tax cuts for businesses.
“Tonight, Senate Republicans voted to block the Buffett Rule, choosing once again to protect tax breaks for the wealthiest few Americans at the expense of the middle class,” Obama said in a statement.
Right now the tax on long-term capital gains, which is where most of the very wealthy make their money, is either 0% or 15%. If you’re in the 10-15% federal income tax bracket then you don’t pay any taxes on these long term capital gains. If you’re in at or above the 25% federal income tax bracket you pay a tax rate of 15% on these cap gains.
However, you only pay 15% on these cap gains regardless of how much money you make over the 25% bracket level, which is $70,701 (married filing jointly). This means people who make $70,701 and people who make millions of dollars both pay the same tax rate on long term capital gains. The problem is that the vast majority of these people paying 15% on cap gains still earn the bulk of their income from their salary, which is taxed at 25-35%. Whereas the vast majority of the super rich make the bulk of their money off these long term capital gains and not salaries, so the majority of their income is taxed at the 15% rate and not the 35% rate.
Take a look at this table to see how the % of an individual’s income that comes from cap gains, dividends, and interest gets higher and higher as their income level goes up.
Income tax for millionaires in the UK is 50% and 40% for over £100,000
Some stats for everyone here.
Check out the Wall Street Journal “What Percent Are You?”
If you make $1,000,000/year, you’re in the top 0.5%. You’re not just in the top 1%, you’re even higher than that.
Now, compare that to people who are making minimum wage (15,080, which I’ll round to $15K). That puts you in the bottom 20%…but not even very low on the bottom 20%, but up at 17%.
That person at 17% would take roughly 66.3 years at their job to make the same as that millionaire at 99.5%.
In order to make as much as the #10 highest-paid CEO in 2011 (Ivan G Seidenberg, Verizon Communications, $36.75M), at minimum wage it would take our 17-percenter approximately 2,437 years to make the same amount of money as the tenth highest-paid CEO. This is not including the various people who have high incomes without being CEOs.
The four hundred richest people in America have, in wealth, somewhere between $1.3-1.5 trillion in wealth. The bottom 50% own only slightly more than that. Outdated source.
The difference is in how millionaires make their money vs. how everybody else does. The majority of people earn money through payroll, which is taxed at 30something percent (depending on your bracket). Millionaires earn most of their money through capital gains, which is taxed at about 16 percent. This is why you see millionaires who only have a salary of about $200,000, but make tens of millions every year – they aren’t getting their money from salary, they’re getting it as returns on their investments, which are only taxed at 16%.
All “Fair tax” means, and what most “liberals” (people who don’t think billionaires need tax breaks) want, is not for them to pay a higher percentage than anyone else… we just want capital gains taxes to be raised to a similar level as payroll taxes. That, or find a comfortable equilibrium. A universal tax rate of about 26-27% on all personal income would be a huge tax cut for 99% of the country (increasing their spending power), and a huge hike on capital gains, all while actually increasing nationwide tax revenue. But the right would have you believe that paying double the tax rate as millionaires is “the American way,” and having everyone pay the same rate is “socialism,” “punishing the successful,” and “not what jesus would have wanted.”
It’s not punishing the successful, guys… it’s just taking away the ridiculous privileges they’ve paid to have written into our laws.
Note: my numbers may be a bit off, but the general idea is the same.