Tax bills for rich families approach 30-year high

This would be "old news" if President Obama's new budget didn't include yet more tax increases on the highest income earners. I include my usual caveat: we tax income, not wealth — so the president and others talking about "the rich" or "wealthy" households are intentionally misleading audiences. The wealthy have their money. The taxes were paid (or not) already and the wealth has been safely invested.

Income is what we tax. Period. And those taxes are at near-record highs, in terms of effective rates paid to local, state, and federal coffers by the top 20 percent of income earners. Caveat two: the effective rate paid is not the "marginal rate" applied to the last dollar someone earns. Again, the president and others mislead by citing higher marginal rates in the past — though the effective rates were much lower!

See also:
http://almostclassical.blogspot.com/2013/01/in-2013-top-1-will-pay-their-highest.html
http://almostclassical.blogspot.com/2011/03/90-tax-rate-myth.html

And now, the old news…

Tax bills for rich families approach 30-year high - Business - Boston.com
http://www.boston.com/business/personal-finance/2013/03/03/tax-bills-for-rich-families-approach-year-high/tPcmllN0iKPUSpp53v8WcI/story.html
With Washington gridlocked again over whether to raise their taxes, it turns out wealthy families already are paying some of their biggest federal tax bills in decades even as the rest of the population continues to pay at historically low rates.

President Barack Obama and Democratic leaders in Congress say the wealthy must pay their fair share if the federal government is ever going to fix its finances and reduce the budget deficit to a manageable level.

A new analysis, however, shows that average tax bills for high-income families rarely have been higher since the Congressional Budget Office began tracking the data in 1979. It's middle- and low-income families that aren't paying as much as they used to.

For 2013, families with incomes in the top 20 percent of the nation will pay an average of 27.2 percent of their income in federal taxes, according to projections by the Tax Policy Center, a research organization based in Washington. The top 1 percent of households, those with incomes averaging $1.4 million, will pay an average of 35.5 percent.

Those tax rates, which include income, payroll, corporate and estate taxes, are among the highest since 1979.

With the top "One Percent" earners, those horrible rich people, already paying an effective rate of 35.5 percent, what does the president consider a "fair" tax rate?

At the other extreme, the "poor" receive money from the government. The poor do not pay income taxes and the credits they receive tend to offset other taxes.

The system is not fair. It does punish the "almost-rich" and the "barely-rich" for working hard and producing more. (I've written about the "hours worked" phenomenon: it turns out the top earners work significantly more hours. Shocking, isn't it?) The president and his Democratic colleagues are fostering a war of resentment. I resent that my taxes are outrageously high in historical terms. That's not fair.

The average family in the bottom 20 percent of households won't pay any federal taxes. Instead, many families in this group will get payments from the federal government by claiming more in credits than they owe in taxes, including payroll taxes. That will give them a negative tax rate.

"My sense is that high-income people feel abused by being targeted always for more taxes," said Roberton Williams, a fellow at the Tax Policy Center. "You can understand why they feel that way."

Apparently, plenty of people don't understand why the upper-class feel this isn't fair. The truly super-rich (the top tenth of a percent) also get unfair breaks and special treatment in the tax code. The "wealthy" (as defined as the top 20 percent) are paying taxes to cover the super-rich and the poor.

In the U.S., the "top 10 percent" starts at $82,500 for individuals and $118,200 for households (2011 data). At least as a household, my wife and I are "rich" and apparently need to be taxed more. A lot more.

Contrary to the rhetoric of politicians, most households with $1 million of income annually are not avoiding taxes, either.

On average, households making more than $1 million this year will pay 37.2 percent of their income in federal taxes, according to the Tax Policy Center. But there are exceptions.

For example, the Internal Revenue Service tracks tax returns for the 400 highest-paid filers each year. Those taxpayers made an average of $202 million in 2009, the latest year available. Their average federal income tax rate: 19.9 percent.

The super-rich don't have normal income. They have special investment incomes. I'm not about to argue this is fair — but it means that the near-rich are getting hammered to score political points.

The middle class? They're being taxed less than the historical norm. The near-rich are paying the difference.

The middle 20 percent of U.S. households — those making an average of $46,600 — will pay an average of 13.8 percent of their income in federal taxes for this year, according to the Tax Policy Center. Over the past three decades, the average federal tax rate for this group has been about 16 percent.