GOVERNMENT Posted on December 7, 2011

New Tax: How Rich Is Rich Enough?

Republicans don't want a millionaires tax. Perhaps they could support a billionaires tax instead, says Fortune.
The debate between Republicans and Democrats over how they’ll afford the payroll tax cuts has rested on the GOP’s opposition to a proposed surtax on million-dollar earners.
While Democrats would like to create a 1.25 percent surtax on those who make $1 million or more, Republicans have balked at this idea, saying the tax would directly inhibit small businesses.
But Fortune‘s Nina Easton argues that Democrats need to change their targets: Instead of taxing the rich, they should consider taxing the super-rich. “Most people that Obama deems ‘wealthy’—those making over $250,000–pay the highest tax rates of anyone around. Even most ‘millionaires,’ with all their deductions, pay the highest rates,” Easton writes.
As long as someone’s income is mostly from a salary, she explains, they’re paying their fair share. Even after factoring in deductions, someone who makes a $1 million salary probably pays a top rate of 29.1 percent, according to data from the nonpartisan Tax Policy Institute.
By contrast, most middle-class households pay average rates in the teens—about 12% if you make $50,000, 15% for incomes in the $75,000 range, and 19.6% between $100,000 and $200,000.
But the very richest Americans make their income from investments—and that’s who Democrats need to target, Easton writes. Any profit from an investment is taxed at the capital gains rate, currently 15 percent. That makes a big difference to the top 400 U.S. income-earners, for whom 92 percent of their income comes from investments.
Billionaire investor Warren Buffett has been advocating for a change to the way the U.S. taxes the super-rich, pointing out that his secretary pays a higher tax rate than he does—and estimating that a change in tax treatment could bring in $20 billion more in revenue each year.
Certainly, this isn’t enough to balance the U.S. budget. But it might be something that Democrats and Republicans can compromise on.

This article is a sole opinion, written by a journalist at Inc. wire and does not reflect my opinion of the opinion of Prudential.
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