David Cay Johnston: The Fortunate 400June 6th, 2012 3:00 pm David Cay Johnston
On top of his $9,225 federal income tax, he also paid $9,409 in payroll taxes, which include Social Security and Medicare taxes. Half of the payroll tax was deducted from his check. His employer paid the other half, which was really hidden wages taxed at a 100 percent tax rate.
His total federal tax burden was 30.3 percent, exactly 50 percent more than the 20.2 percent tax burden, measured the same way, on the 400 at the top.
This comparison illustrates how Congress has created two income tax systems, separate and unequal, burdening millions much more heavily than the few, those with gigantic incomes and a propensity to make campaign contributions.
One system is for wage earners and pensioners, whose taxes are withheld from their checks. This rigorous, efficient system taxes them fully.
The other system is for business owners, executives, managers of hedge and private equity funds, name brand athletes and entertainers, and many others with huge incomes. Congress lets them put unlimited amounts of income in sheltered accounts and put off paying taxes for years or even decades.
Deferral does not prevent these super rich Americans from spending their money. Hedge fund managers and others can borrow against their untaxed wealth, currently at interest rates close to zero. So long as their wealth grows faster than their borrowing their net worth continues to increase.
The IRS report covers only the 400 highest incomes reported on tax returns, not the 400 highest actual incomes, which I am certain are much larger on average because of deferrals. That means the report overstates the tax burdens of the richest Americans pay.
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