Implemented in 1969 to make sure upper-income Americans pay their share of taxes, the AMT has increasingly snared more middle-income Americans over the years because it was never indexed for inflation.
During the 2011 tax year for example, the higher tax hit single taxpayers with incomes as low as $48,450 and joint filers making only $74,450.
But millions more Americans could be subject to the AMT in their 2012 returns if Congress fails to reach a deal on the fiscal cliff before year-end. That’s because the AMT is currently scheduled to hit individuals making as little as $33,750 a year and joint filers making $45,000.
Being married and making over $45,000 a year is the “new rich.”
4 thoughts on “$45k/yr is the “New Rich””
If we’d only tax wealth instead of income… http://wtfcobra.wordpress.com/2012/11/29/daniel-altman-proposes-an-alternative-to-federal-income-tax/
There are (at least) four major problems with the “wealth” tax.
1 – People Who Get More Back Than They Pay In
First off, b/c of the earned income credit we have a tax system whereby about 15-20% of tax filers get more money back (via refund) than they paid in tax. i.e. We redistribute wealth via the tax code.
Also, we have the foreign people who do something similar. Recall this story from earlier this year. http://redalertpolitics.com/2012/05/03/illegals-getting-billions-in-tax-refunds-for-kids-in-mexico/
These are two groups of people who — using language of the day — would be facing a massive tax increase should we move to a wealth tax even where their rate would be zero. That would be very unpopular with current Progressives and not get through Congress.
2 – It’s Unconstitutional
Read the 16th Amendment; a wealth tax is not covered. The proposal would require a constitutional amendment to implement. That’s not impossible; just difficult.
3 – It Doesn’t Work as Claimed
Assuming U.S. gross wealth at around $58T (see article) and assuming the top 1% control 34.6% of the wealth & the top 20% control 85% (via Wikipedia). The wealth controlled by the top 1% and 20% are roughly $20T and $49T respectively. Assume you tax the wealth of the entire top 20% ($49T) at 2.0% (as suggested by the article) to get tax revenues of $980B. That would just about cover Social Security expenditures in 2012…. and nothing more. You’re still several trillion dollars short of what you really need. So… it’s a scam.
Further, in the calculation of wealth I own my house. But I happen to owe more than it’s worth. So does the government tax me on the the balance that I owe or the value of the house. Who sets the value and why should I be taxes on something which I owe a few hundred thousand dollars anyway?
4 – It’s Wholly Unjust
Consider what happens when you have billionaire who has a bad year. His effective tax rate can be infinite of his income. Your going to tax the entire wealth of someone (or their family as suggested by the article) at 1 or 2%. Some when someone who has most of their money in real estate takes a hit and loses maybe 20% of their wealth in a single year the government is still going to come along and take their percentage?
The defacto result is that the government will be in the real estate business. In Chicago we had a project called the Chicago Spire. The project went bankrupt. Under a wealth tax plan everyone who lost everything would still owe the government. Is that just?
Further, in year of low inflation “the rich” may not even earn 2% on their money. Remember, you’re going to tax their cars, boats, food, dogs, & iPads of these people — all of which is depreciating. Even if their investments earn 3-4% annually they as a whole may only earn 1% on their money. Or they have a bad year in the stock market and actually lose money. These people will have an effective tax rate over 100% of their income. One could lose 90% of one’s wealth in a year and the government would still come looking for their cut. Something very very wrong with that.
Lastly, the wealth tax will lead to just as cumbersome tax code as we currently have. The Laffer Curve will force people to hide money overseas and in corporations. If you put corporations on a wealth tax they will simply flee in droves. Image Coke or Apple having to pay a tax for the goodwill on their trademark, it’s part of its assets. It’s crazy.
Any tax plan must be first based on determining who should pay what? See this post here: http://jamesbosco.com/2012/09/08/who-pays-what-income-taxes/
Is it really fair that anyone pays zero? Can one feel connected to their country; can they participate in the common purpose when they pay nothing? Was not JFK correct in asking everyone to do something for their country? Should not even the poorest among us pay $10-20 for the common? I think they should be proud to do so. They can hold their heads high and truthfully claim that they did their part.
“Everyone does their part” (as Obama likes to say) implies that everyone contributes. Being a “net taker” is not contributing. Right now our tax code fully supports the net takers. Fix that and you’re half-way to fixing everything else.
What about a flat tax, or VAT?
A flat tax is morally unjust. One should not ask someone making $24k/yr to pay the same rate as someone making $20 million/year.
A VAT is an interesting idea. Used world-wide with some degree of success. It unfairly favors the rich to some extent should it be the only tax. But coupled with a just income tax a VAT could work.
Comments are closed.