Posted on December 9, 2011 by Libby Kane
No one likes taxes.
And no one likes the idea that they’re paying more taxes than anyone else, no matter what their income.
That’s why President Obama’s claim Tuesday night that “some billionaires have a tax rate as low as 1%” is making waves. The idea that the people who have the most are handing over the least to the government is unappealing, but, in some cases, true.
Warren Buffett, the philanthropic billionaire and chairman and C.E.O. of Berkshire Hathaway, published an August opinion piece in the New York Times titled “Stop Coddling the Super-Rich,” where he revealed that he paid 17.4% in federal income taxes in 2010, while the rest of his office averaged a tax rate of 36%.
His essay was so widely discussed that when President Obama proposed that people earning more than $1 million per year should pay at least the same income tax rate as middle-class Americans, it was dubbed “The Buffett Rule.”
All of this is well and good, but let’s back up for a second: How is it possible that the taxes of the 1% are only 1%?
Is the 1% Really Only Paying 1%?
It’s a fact that those in the highest income brackets often pay the least in taxes. The actual rate, whether 1% or more, is not likely to ever be confirmed due to the relatively low number of billionaires and the privacy restrictions of such an investigation. But, we do know, courtesy of the Tax Policy Center, that more than 4,000 households earning over $1 million owed no federal income tax whatsoever last year.
It’s not that the rich are operating outside of the law: Perfectly legal tax rules tax investments at a lower rate than regular income. And what’s something that many wealthy people have? Investments and other monetary vehicles with low tax rates. They also have the disposable income necessary to hire a money manager and to make charitable donations, both of which help them get even more tax breaks.
Why Taxes Are a Political Sticking Point
So as the Occupy Wall Street protests pointed out, there really is a difference between the 1% and the 99%, at least when it comes to what they pay Uncle Sam.
But whether we should do anything about that difference has the government divided. Taxes were, in fact, one of the points of contention that led to the breakdown of the so-called Super Committee, which was charged with creating a feasible solution to reduce the country’s debt.
To funnel more money into the government, the Democratic party has proposed increasing taxes for those earning more than $1 million and simultaneously extending, for everyone else, the Bush-era tax cuts that are set to expire at the end of the year.
The Republicans, meanwhile, are in a tight spot politically. They oppose the Democrats’ plan to extend the Bush-era tax cuts for everyone but the rich, but can’t vote against the Democrats’ proposal without appearing that they only support tax breaks for the rich.
While it remains to be seen how Washington will rule on the matter, we can say this: “The rich” are taxed disproportionately less because they have the resources and the knowledge to legally work the system. Not everyone can have the resources, but know-how is something we can all work to acquire.