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6/05/2005 12:40:00 PM | Justin

The myth of the graduated income tax

I recommend taking a look at this New York Times study on the unfairness of U.S. income taxation system and the growing class divide.

Some highlights:

Under the Bush tax cuts, the 400 taxpayers with the highest incomes - a minimum of $87 million in 2000, the last year for which the government will release such data - now pay income, Medicare and Social Security taxes amounting to virtually the same percentage of their incomes as people making $50,000 to $75,000.

Those earning more than $10 million a year now pay a lesser share of their income in these taxes than those making $100,000 to $200,000.

It’s hard to understand how this could be considering that those earning 70-150k are supposed to pay 28%, while those earning 325k+ are supposed to pay 35%, but a combinations of factors including the very wealthy’s greater investment income, the cap on social security taxes at 90k, and elaborate tax shelters, coalesce to push wealth income taxes below upper middle class income taxes.

The Bush Administration claims that the Bush tax cuts have shifted payments in favor of middle and lower classes, but it’s hard to see how this could be true, considering the following (also from the NYT study):

Still, an Internal Revenue Service study found that the only taxpayers whose share of taxes declined in 2001 and 2002 were those in the top 0.1 percent.

Considering these statistics, one would think a logical way of tackling social security would be to raise the 90k cap to cover incomes up to 150k, or even to cover all incomes. This idea has been hotly debated in congress, but the SS policy of progressive price that is currently in vogue only shifts more tax burden to the upper middle class, leaving the very wealthy unaffected. The two main arguments against eliminating this cap are a) the very wealthy don’t benefit from social security b) It would amount to the largest tax hike on the extremely wealthy in history. But raising the cap on social security seems like a good way of correcting this problem where the extremely wealthy are paying a smaller percentage of their income in taxes than the somewhat wealthy.

It's disturbing how the limited debate on class issues in congress always ignores the extremely wealthy, allowing them to escape with such a light tax burden.




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