|From 2011-10-06 Occupy Portland|
This first link goes to a video by Yahoo News... Not much to say here. The article and video pretty much speak for themselves.
The reasons for the growing disparity, which the CBO, without irony, measured by an increasing "Gini coefficient," were buried deep in the report. It's how income was taxed that allowed the ultra-wealthy to keep more of what they earned compared to middle- or lower-class Americans.
INVESTMENT INCOME EARNERS ARE TAXED LESS
Most lower- and middle-class earners make their money from wages, which are subject to Social Security, Medicare, federal and state taxes. But income from businesses, capital gains and dividends may be taxed at lower rates. In the CBO study period, the share from capital gains and business income increased, meaning upper-income families reaped greater after-tax benefits just from the kinds of non-wage income they reported.
When you're on salary, you get taxed regularly through your paycheck. If you hold stocks, bonds, business equity and property, your capital gains -- if any -- can be delayed for years. Holding securities in tax-deferred retirement accounts can put off taxes for decades.
EXECUTIVES AND FINANCIAL PROFESSIONALS DID BEST
Again, no surprise here. But when you can structure your compensation so that it's tax-deferred, paid in stock options or paid as capital gains, dividends or carried interest, you can pay much less to Uncle Sam and keep more of your income. Long-term capital gains, dividends and carried interest are taxed at a maximum 15 percent rate.
When the bulk of your income comes in those forms, you avoid taxes at the maximum 35-percent marginal federal rate. So those at the top of the compensation pyramid not only made more in gross income, their overall tax rates were lower because of how their pay was received. Billionaire Warren Buffett is a good example. His average rate was 17.4 percent.
LOWER-INCOME HOUSEHOLDS PAY MORE IN PAYROLL TAXES
Since the highest earners were paying less in overall taxes because they were paid in non-wage income, their payroll tax rate was also lower. The CBO found that the lowest fifth of families paid an average 8 percent in payroll taxes while the highest-income group paid under 2 percent.
Why are the poor paying quadruple the amount of payroll taxes than the rich?
They are unlikely to report investment or business income at the lowest rates. Attention tax reformers: You could make a case that the wealthiest Americans are not paying their fair share for Social Security, Medicare, state and federal programs. But since the tax code allows them to avoid paying any more, it's perfectly legal now.
Related Post: A good chart on income inequality: The top 1% versus the Median Income since 1947
Source: Center For American Progress
Found on Center For American Progress. Originally submitted by volunteer editor Jayne C.