Richer & Poorer
from the National Priorities Project Costoftaxcuts.com
Among the tax provisions enacted by President Bush and extended by President Obama were reductions in the top marginal income tax rates, from 36 and 39 percent, respectively, down to 33 and 35 percent.
What is a “marginal tax rate?”
A marginal tax rates is the rate at which your last dollar of income is taxed. So, for example, if you’re single and you make $22,000 per year, then your first $8,500 of income is taxed at a rate of 10 percent, and the rest of your income is taxed at 15 percent. In that case, 15 percent is your “marginal” tax rate (See the illustration below for all marginal tax rates and the income levels they apply to).
The top marginal tax rates—now 33 and 35 percent—affect American families making at least $212,301 and individuals making at least $174,401.
According to the nonpartisan Congressional Research Service, when President Bush lowered those top rates, and when President Obama extended them, doing so was almost perfectly “regressive”—that is, the benefits went to the wealthiest Americans.
The U.S. House of Representatives passed a budget for Fiscal Year 2012 that would lower the top marginal tax rate again, this time down to 25 percent. That budget, introduced by House Budget Committee Chairman Paul Ryan (R-WI), would reduce federal revenues by a total of $4.2 trillion over ten years, a loss that was partially offset with $2.9 trillion in cuts to Medicare, Medicaid, Social Security and other earned benefits.
(Congress and President Obama have yet to agree on a budget for 2012, even though the new fiscal year began on October 1, 2011. See National Priorities Project’s analysis of the Ryan budget proposal.)
Source: Internal Revenue Service
Taxes on Capital Gains
The tax rates discussed above apply to payroll wages, but there are two other types of income that mostly go to the wealthy and are taxed at lower rates than regular wages: “Capital gains,” which are profits earned from selling assets like real estate, and “dividends” earned from stocks.
Under President Bush’s tax cuts, and President Obama’s extension, capital gains and dividends are taxed at a maximum rate of 15 percent. Effectively, this means taxpayers earning more than $34,500 per year in wages pay a higher marginal tax rate than millionaires earning their income from investments. In 2007, 80 percent of all capital gains went to Americans earning more than $200,000 per year.
WAMMToday is now on Facebook! Check the WAMMToday page for posts from this blog and more! “Like” our page today. You may also subscribe to WAMMToday from this blog website. You will receive an email for each post if you subscribe.