Why American Workers Pay Twice as Much in Taxes as Wealthy Investors

["Dave Farber" <farber () gmail com>]

Begin forwarded message:

> From: Dewayne Hendricks <dewayne () warpspeed com>
> Date: September 14, 2017 at 8:34:46 AM EDT
> To: Multiple recipients of Dewayne-Net <dewayne-net () warpspeed com>
> Subject: [Dewayne-Net] Why American Workers Pay Twice as Much in Taxes as Wealthy Investors
> Reply-To: dewayne-net () warpspeed com
>
> [Note:  This item comes from friend David Rosenthal.  DLH]
>
> Why American Workers Pay Twice as Much in Taxes as Wealthy Investors
> What’s best for the country? What’s fair? And will either matter when Congress takes up tax reform this fall?
> By Ben Steverman
> Sep 12 2017
> <https://www.bloomberg.com/news/features/2017-09-12/why-american-workers-pay-twice-as-much-in-taxes-as-wealthy-investors>
>
> Let’s say you and I are neighbors. You’re an emergency room doctor, and I don’t work, thanks to a pile of money my 
> grandparents left me.
>
> You spend your days and nights stitching up gunshot wounds and helping children survive asthma attacks. I’ve gotten 
> really good at World of Warcraft, winning EBay auctions, and frying shishito peppers to just the right crispiness.
>
> Let’s also say we both report $300,000 in income to the Internal Revenue Service this year. Who pays more in taxes?
>
> You do, by a lot. You owe the IRS about $38,500 more, assuming each of us pays the maximum with no special 
> deductions. I also have more flexibility to lower my burden with tax planning strategies and other tricks, and I get 
> to skip about $24,000 in payroll taxes that you and your employer must fork over each year.
>
> This isn’t some quirk of the U.S. tax code. Politicians have intentionally set tax rates on wages much higher than 
> those on long-term investment returns. The U.S. has a progressive tax system in the sense that well-paid workers 
> sacrifice much more than poor workers on their “ordinary income.” But Americans with so-called unearned 
> income—qualified dividends and long-term capital gains—get a break. A billionaire investor can pay about the same 
> marginal rate as a $40,000-a-year worker, a fact Warren Buffett has famously lamented.
>
> The last time Congress passed comprehensive tax reform, in 1986, it eliminated the gap between workers’ and 
> investors’ taxes. Their rates didn’t start diverging again until the early ’90s, when Congresses controlled by 
> Democrats boosted taxes on wealthy Americans’ wages more than on their investments. Republican-controlled Congresses 
> widened the gap further by slashing rates on rich investors in the late 1990s and early 2000s.
>
> A 1986-style rebalancing is unlikely to happen this fall, however, as President Trump and his fellow Republicans in 
> Congress attempt to tackle tax reform. The gap may even widen further. 
>
> A key goal is to “simplify the [tax] code so much that you can fill out your taxes on a postcard,” House Speaker Paul 
> Ryan said on CNN on Aug. 21. While other details of proposed tax reform remain fuzzy, Ryan and other Republicans have 
> been promoting a draft of that postcard on social media.
>
> The first line asks filers to write down their previous year’s wages. For you—the ER doctor in the fictional scenario 
> above—that would be $300,000. The second line asks filers to add just half of their investment income. For me, that 
> would be $150,000.
>
> The form’s simplicity makes its priorities clear: No matter what rates are applied or which deductions or credits are 
> allowed, a worker would end up paying twice as much in taxes as an investor with the same income.
>
> Americans in the top 1 percent, and especially the top 0.1 percent, have seen their wealth and income multiply in 
> recent decades as the rest of the country’s share of the economic pie shrank. Since 2000, a recent study found, the 
> top 1 percent have made those gains almost entirely on income from capital, especially corporate stock—not on labor 
> income. One reason may be the financial options of the wealthy: Business owners can lower their tax bills by paying 
> themselves in dividends rather than in salary, for example.
>
> Meanwhile, the U.S. Treasury is expected to run a 2017 deficit of $693 billion, according to the Congressional Budget 
> Office’s latest estimate, some $108 billion more than in the 2016 fiscal year. As baby boomers retire and health-care 
> costs rise over the next few decades, the government’s fiscal situation is expected to worsen.
>
> The argument in favor of lower taxes on investors—and on corporations, another GOP priority—is an economic one.
>
> “We want a tax code built for growth,” Speaker Ryan said. “We want a tax code that raises wages, keeps American 
> companies in America, gives us faster economic growth.”
>
> [snip]
>
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