New Ways the Rich are Getting Hammered by Taxes

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It’s tax time and that means the rich better get ready to open their wallets to pay even more this year. Depending on where you fall on the political spectrum, that’s a bit of news that could have you cheering or grumbling.

Watch the video below to see Money Talks News financial expert Stacy Johnson give a rundown of what’s on tap, taxwise, for the rich as they prepare their 2013 returns. Then, keep reading for more details and to find out if the rich really are paying their fair share.

5 ways the rich are getting hammered

The tax code is ever evolving, and several provisions of the ironically named American Taxpayer Relief Act actually mean wealthy taxpayers are paying more. Here are some of the new ways the rich may see their tax bill go up:

  1. Special tax rate for top incomes. The top tax rate used to be 35 percent, but the American Taxpayer Relief Act added a new rate for those earning more than $400,000 on a single return or $450,000 on a joint return. Make money above those amounts, and you’ll be sending 39.5 percent of it to Uncle Sam.
  2. More capital gains tax. Most taxpayers will pay a 15 percent tax on long-term capital gains – that is, profits made off the sale of investments held for more than a year. However, once you hit that $400,000/$450,000 income level, you’ll start pitching in an extra 5 percent of your profits to the government. Individuals with incomes at those levels have a long-term capital gains tax rate of 20 percent.
  3. Medicare surtax. Sometimes called the Medicare contribution tax, this tax comes compliments of health reform. If you have an adjusted gross income of more than $200,000 on a single return or $250,000 on a joint return, you could get hit with a 3.8 percent tax on investment income such as interest and dividends.
  4. Medicare surtax for the self-employed. If you work for yourself and earn more than $200,000 or $250,000 on a single or joint return, respectively, you get to pay an extra 0.9 percent in Medicare tax. Lucky you!
  5. Pease limitation. Finally, the American Taxpayer Relief Act reintroduced the Pease limitation, a provision that had been eliminated by the Bush-era tax cuts. Named for the congressman who helped create it, the Pease limitation restricts the ability of wealthy taxpayers to claim certain deductions. For 2013 taxes, this provision kicks in once your adjusted gross income hits $250,000 for single filers and $300,000 on a joint return.

How much do the rich really pay?

Oh, boo hoo, you say. The rich have plenty, and they are always weaseling their way out of taxes anyhow, right?

How much in income taxes do the wealthy pay? CNN reported last year:

The top 10 percent of taxpayers paid over 70 percent of the total amount collected in federal income taxes in 2010, the latest year figures are available, according to the Tax Foundation, a think tank that advocates for lower taxes. That’s up from 55 percent in 1986.

The remaining 90 percent bore just under 30 percent of the tax burden. And 47 percent of all Americans pay hardly anything at all… .

That’s just federal income tax and doesn’t include payroll tax for Social Security and Medicare (which the vast majority of people pay), plus state taxes and all of the other taxes we face. When you add them all together, using figures from the Tax Policy Center and the Institute on Taxation and Economic Policy, Josh Barro at Business Insider wrote:

Earners in the top 1 percent pay about 43 percent of their incomes in tax. People in the middle quintile pay 25 percent. The poorest fifth pays 13 percent.

Finally, before you assume these one- and 10-percenters are living on luxury yachts and in million-dollar mansions, consider how little money it takes to be a top wage earner. According to 2011 IRS data, the top 1 percent have adjusted gross incomes of $388,905 per year or more. To be in the top 10 percent, you need an adjusted gross income of just $120,136 or more.

Good incomes to be sure, but definitely not enough to be vacationing in Tahiti 10 months of the year.

Tips to reduce your tax burden

Regardless of how much money you make, unless the government is your favorite charity, there is no reason to pay a single cent more in income taxes than you have to.

Check out the Money Talks News Tax Hacks 2014 series to learn how to avoid costly tax-time mistakes, reduce your chance of an audit and uncover how to take a home office deduction, among other things.

As for the rich getting hit with taxes, what do you think about the progressive tax system? Is it right for the rich to pay more since they make more? Connect with other readers by commenting below or visiting our Facebook page.

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Comments & discussion

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  • Kent

    Income taxes are lower than they have ever been in my lifetime. It makes sense that the more you benefit from our society, the more you should contribute. Also, to be a top earner, chances are that at least some of your earnings involve the exploitation of others less fortunate. Many top earners also benefit from government subsidies in everything from farm subsidies, Wall Street bailouts, bank bailouts, low interest rates at the expense of savers to bailout banks and homeowners, public schools, public roads, war profiteering before, during and after wars, healthcare, use of our public air waves… Our government is very generous and not just to those that need a hand up.

    • nitemare2

      And tax revenue is higher than it has ever been. And exactly
      how do the rich benefit “more” from society? And please explain you’re
      meaning of exploitation, do you mean they hire people and pay them to do a job?
      They buy things from people and pay them money,? They give large amounts of
      money to charities? What is your definition of exploitation? Individuals who
      are rich do not get subsidies that would be those collecting welfare and food
      stamps and other handouts from uncle sugar. Bail outs and subsidies go to
      Companies to protect the people’s money. Low interest rates go to those who
      have good credit and a proven way to repay a loan, ask any lending institution.
      Most rich send their children to private schools and still pay the taxes for
      public schools. They pay cash for healthcare and have health saving accounts
      for catastrophic health costs. You are giving the typical liberal/progressive
      line of bull crap. Go to your local public TV or radio and find out who gives
      the largest donations look at the end of most shows and you will see this
      foundation and that one they are from rich people who give large sums of money
      so you can watch Sesame Street is part of it a tax deduction yeah so what, it’s
      better than giving money to the Dems to research what happens when a shrimp
      runs on a tread mill. Your are right the Govt. throws money down the drain,
      Obamas green energy ideas have given over $100 billion to companies who have
      gone bankrupt. We lost over $10 billion bailing out GM. The Liberals no longer
      give a hand up they give lifelong handouts. If they can give someone a check
      that’s at least1 vote they just bought,
      case in point now it’s good that someone doesn’t have to work and can depend on
      the Govt. so they can spend more time doing nice things like painting or
      traveling. Just ask Nancy Pelosi. The CBO just reported that 2.3 million people
      will work fewer hours because of the ACA and 500k will lose their jobs
      completely, what was promised to cost less than $1 trillion will now cost $2.1
      trillion or more. I won’t even go into the other promises that were lies.

      • officer24

        Thank you! I hope someday more people will realize government is not the solution but actually an albatross…

        • Bob K

          On rare occasions, that darn government does limit the ability of corporate America to take advantage of consumers and employees – darn that interfering government.

          • officer24

            Agreed, on RARE occasions. Limited government, not laissez faire pure unregulated capitalism.

          • faithandhonor

            And an extra gallon of Obama Kool-aid to Officer24

      • Bob K

        The cost of freedom is high (paid for by the lives of young men and women almost exclusively from the middle class and poor). The 10% is certainly not helping with that bill. The least the 10% can do, is pay their fair share of taxes.

        • faithandhonor

          Bob, did you even READ THE TEXT of the article? Isn’t 79% of total taxes enough? When is it enough? when you have enslaved those work 70-hour weeks (as I did) to keep payroll going?

          When does the productive individual get to have praise for creating jobs, sponsoring innovation, giving to charities (which leftists never do, the only take OTHER PEOPLE’S money and give it to nee’r do wells), etc., instead of being treated like a damn milk cow, maybe to soon become a beef cow, and slave of the State, only to produce for those who can’t keep their johnsons in their pants and their legs together, the Obama voters…Gimmee, gimmee, gimmee, ad nauseum.

          Go to the Obamastore and get yourself another digit on your IQ, take remedial reading, and then DON’T VOTE until you have a real-life education on the REAL WORLD OF WORK. Oh, sorry, forgot that the Obamastore doesn’t allow triple-digit IQs.

        • nitemare2

          Do you have any facts about the 10% not serving? Just look at the past Presidents until Clinton they just about all served. GW served many of the republican rich have served far more then the democrats they all ran off to Canada during the Vietnam era. And if you take the same percentage of those who served you will naturally have fewer from the 10%. And how much do you call fair? Obama keeps changing it he got his tax increase and the Bush tax cuts reversed and now we hear the same thing “if only they would give just a little bit more.” So what amount is fair?

  • josh

    the wealthy pay more because income inequality is greater. duh. you can’t tax someone who doesn’t have any money. if money is concentrated into fewer hands those at the top will pay more to maintain the same government services. pretty simple mathematics. And i don’t feel a bit sorry for them. as most right-wing nuts would put it…”if you don’t like get the f*** out.”

    • nitemare2

      I like how you left wing nuts seem to feel that money you did nothing to earn should some how be yours for the taking? If they do leave to live in a less taxing country and take their money and jobs with them you left wing nuts scream even louder. So Josh you left wing nut how much is enough? What amount of someone else’s money do you want to steal?

  • Barb

    If memory serves the top income paid much higher taxes a few decades ago. Most other leading countries pay much higher taxes than we do. Those at the top would not be there if not for those closer to the bottom who buy what they sell. Trickle down theory does not work. A top heavy economic population is very unstable. The 47% percent pays a lot of taxes. Everytime they buy groceries or anything else like gasoline or utilities, they pay taxes. Food stamps and other services do not provide every cent they need to live. Very few abuse the system. Many more are trapped in it. The very rich have rights but they should not call the shots for everyone else.

    • FJL

      Good facts. Before Reagan the rich paid over 70% and our economy was rolling along just fine. Millionaires use the commons for business far more than individuals to be successful, from the courts to fire/police protection, roads and infrastructure for factories/offices, educated employees… all of these paid for with taxes. And 35 years ago, if income taxes were deemed too high, the rich would simply invest more in their business, becoming richer and employing more. Sitting around the pool collecting dividend checks at 15-20% taxed versus the working stiff at 28% or the doctor saving lives at 35%. The author of these piece is too young to understand the history behind our tax system and how well it worked through the 50’s until the early 80’s.

      • officer24

        That 70% you state prior to Reagan is a bogus number! Yes, there was high rates, but there were thousands of loopholes and deductions that allowed most high earners to effectively pay zero taxes. You could write off interest on credit cards and loans, for example. Why do you think the alternate minimum tax was created (AMT)? The only reason our tax system “worked so well” (really? were you around during the Jimmy Carter malaise?) or worked at all was government spending was so much less than it is today.

  • BR549

    First I am in the top 15% of taxpayers. But it is really quite simple. If 10% of the taxpayers make 70% of the money made, then they should pay 70% of the taxes due.

    • officer24

      Top 10% makes 45% of income, not 70% that you claim. They do pay 70% of nation’s tax bill however. Not progressive enough for you? Maybe it should 100%?

    • Patrick Seitz

      That’s exactly what I was thinking as I read the article. In addition to considering the percentage of total income tax collected this group pays, it would also be helpful to know what percentage of income they earn as well as the percentage of total liquid assets they hold.

      • faithandhonor

        And most “wealthy” people practice ordinary good fiscal habits. They don’t send food money on tooth grills or tats, they SAVE IT. They understand the concept of “delayed gratification”, saying “no” to current pleasures so they can have comfort in their later years, and pass on something of that legacy to their children, both in money and character. Something about which Bob probably doesn’t know much.

    • Bob K

      We ought to insist, as well, that 10% of the solders in the military (and 10% of the police, firemen and teachers) ought to be from this top 10% as well.

      • faithandhonor

        The military, many of whom give their lives and limbs to keep YOU safe, you libtard, live on VERY low wages. VERY. And they don’t complain, either, like the incessant blathering and bleating of the SEIU, “gimme, gimmee, gimmee, mo’ money, YO” money” folks. They consider it an HONOR to serve, and we OWE THEM HONOR for doing that. I bet you never served, did you? You just serve your own exalted opinions, inflated ego, and pathological narcissism.

        Disgusting. Go and donate a kidney to wounded warrior or something to redeem yourself, dude. You are not fit to lick their boots. Or other parts.

  • officer24

    See chart about income % and tax paid %:

  • http://www.moneytalksnews.com/ Stacy Johnson

    This site isn’t slanted at all, not to the right, the rich, the left or the poor. I can’t speak to the comments on articles, because I don’t control them.

    • Voice of Reason

      Of course it’s slated. “New way the rich are getting hammered” is a perfect example. Hammered compared to jistorical tax rates for the rich? Or just since the insane Bush tax cuts? Hey, I was a huge benifactor of those cuts…but never dreamed they’d last this long. Getting hammered by new or increased taxes still is nothing compared to the preBush cuts or the Reagan years. We are still in tax heaven with the latest increases compared to both those eras. Do your research before you lead with such a pathetic pandering title to the right trying to empathize with our faux pain. Some scream because they don’t want to return to those days of real taxes on the rich. If I can afford it so can my crybaby friends.

      • faithandhonor

        Well, you are certainly free to go to the government and GIVE THEM MORE OF YOUR PERSONAL MONEY. Nobody’s stopping you.

        What’s NOT right is for your to use the government, who wastes EVERYBODY’S money for their OWN self-aggrandizement, to extract and extort more money from productive people to go down the redistributionist rathole of government graft, to give to the uneducated, lazy, corrupt, undisciplined, uncivilized, who HAVE NOT EARNED IT. “Earned”, DO YOU UNDERSTAND THE CONCEPT?

    • Bob K

      Don’t be obtuse – he is referring to the high percentage of comments that supports the viewpoint of the right.

      • faithandhonor

        Well that’s kinda RUDE to the host of the site, Bob. I don’t always agree with Stacy;s take, but he provides a pretty good website FOR FREE, and I appreciate that. Didn’t your mother ever teach you any manners? Or are you just sitting in your mother’s basement eating Doritos?

  • Rick Chumsae

    Well, this struck a cord! To me it is the first necessary step toward equality and fairness between the Haves, the Have Nots, and the currently weakening and shrinking Middle Class.

    There is no real, enduring freedom without fairness.

    • faithandhonor

      And just how do you define “fairness”?, Rick. Stupid, meaningless term, used by demagogues to incite the greed and desire for “other people’s money” (OPM) in those who will not invest the same time, diligence, innovation, talents, sacrifice, smarts, etc. into making their own way. I.e., “Mo’ money mo’ money, YO’ money, sucka”. “nuff said.

  • Bob K

    A minimum wage that is worth 15% less than it was ~35 years ago, stagnant wages for the middle class during that same time period, the income for the top ~10% has increased at 3X the rate of inflation during that same time period, while we have the lowest tax rates in the past ~40 years. Yet, that top 10% fights to keep the minimum wage as low as possible, while complaining vehemently about any increase in taxes – greed with a capital G.

    • faithandhonor

      For God’s sake get an education on economics, Bob. The middle class net take-home pay has DECLINED due to vast increases in taxation. In 1950, the federal tax burden on a middle-class family was about 2%. And the GREED belongs to the GOVERNMENT, not the ordinary citizens.

      A middle-class taxpayer’s income is subject to a 25% federal income tax. Then there is the Social Security and Medicare payroll tax of 13.3 percent in 2012—5.65 percent of that is removed from the employee’s paycheck, and the remaining 7.65 percent is paid by the employer.

      So the 25 percent federal income tax plus 13.3 Social Security and Medicare payroll taxes equals 38.3 percent going to federal taxes in 2012.

      And then there are state taxes. The Tax Foundation estimates the average state’s income tax rate for the middle-class taxpayer at 4.82%, which brings the total to 43.12 percent in federal and state taxes. And it’s going even higher, thanks to $500 billion in tax increases for 2013. In January 2014, the federal income tax rate for middle-class taxpayers is
      scheduled to rise from 25 percent to 28 percent, and the payroll tax is scheduled to rise from 13.3 percent to 15.3 percent. This drives the marginal tax rate based on the aforementioned three taxes to 48.12 percent. Add in state and local property, corporate, excise, and other state and local taxes, and the percentage of each additional dollar that
      is taxed hovers around 50 percent.

      So, Bob, faced with FACTS, and not just OPINION, what do you say, oh profoundly ignorant one?

  • faithandhonor

    Wish I could give you FIVE LIKES, Ron. Bravo!

  • http://www.moneytalksnews.com/ Stacy Johnson

    If your comments don’t immediately show up, that’s because I haven’t had time to read them. I’m the only person who monitors this site, and obviously can’t work 24/7. Also, if you include a link to another site, that won’t post. And finally, if you use any abusive names or languages, or anything other than civil debate, that won’t post either.

  • faithandhonor

    Subtitle is “5 Ways the Rich Are Getting Hammered in Taxes”, Voice. I don’t see any other “subtitle”. I see paragraph headings, but nothing related to “fairness”.

    Regardless, the term is now used primarily by demagogues whose ONLY solution, greedy dullards that they are, is to take money out of some productive person’s pocket, run it thorough some bureaucracy which takes its cut, and pass the rest on to the political favorites. This is not limited to Dims, but is practiced by the “political class” to the detriment of the “productive class”, who are then vilified for not allowed their productive efforts to be increasingly squeezed until their desiccated carcasses lie at the side of the road, devoured by their inferiors through venal and enny-based legislation.

    And no, not a “hall monitor”, just someone that tires of hearing fantasy and ill-informed opinion presented as fact, and then demanded to be enacted through legislation, with a large doses of sanctimony (“fairness”) thrown in. I guess I see myself as a presenter of fact, to counteract the fantasy.

  • faithandhonor

    Rick, Americans love “fairness”. We are a compassionate people who wish to see those succeed and prosper, who make the effort and live accordingly, so I commend your heart. I, too, feel that way.

    But the concentration of wealth at the top has been CREATED by political preferences by the very same people to whom many now appeal to create more “fairness”. This is sort of like 2 wolves and a lamb deciding what’s for breakfast… The lamb being the small businessperson. I object to letting the wolves who created the problem in the first place, and profited and bought votes from their actions, decide what the next solution will be. I am a lamb.

    And if we leave it to DC, then we are all truly lost, for the jobs generating machine (small business), which is the engine of growth and prosperity, is being crushed and damaged beyond repair by those DC policies, in favor of big business.

  • Voice of Reason

    Thank you Stacy for your work. As I mentioned, I’m new here and am now seeing how your site operates. It’s hard to do this on your own and after reading many of the other articles you’ve assembled, I would have to agree that you are closer to the middle than the first several artcles that caught my attention. Unfortunate timing I guess. But bravo to you for your effort in bringing a variety of newsworthy topics. I too appreciate your work! Thank you!

    • http://www.moneytalksnews.com/ Stacy Johnson

      Thanks, Voice! That’s one of the first nice things anyone has said to me in these comments. I really appreciate it!

  • Debbie

    You go Stacy. I so appreciate your doing that…..dumping the Haters mean comments. You folks can make your point just fine without the childish and debasing comments. I don’t think they realize their bad behavior reflects on them, not others. It only encourages others to banter back and forth without really getting to the crux of the matter. Thanks

  • Cheryl

    Oh boo hoo. Hogwash. Let’s check out those offshore accounts expressly held to avoid paying U.S. taxes, and let us not forget the millions of jobs shipped overseas so these poor poor rich people could pay nano pennies instead of real dollars for labor…and a whole bunch of other costs they don’t pay while somehow managing to still charge top dollar for all the goods they bring back here to the people who no longer have jobs. Where’s your listing for those? Let’s check out some of those odd deductions too, such as $75,000 a year deduction for mrs. “didn’t win presidential election’s” fancy horse? Uh huh. And the “free-to-fly” personal aircraft? You know, the ones they opened all the small airports for while the rest of us suffered under the republikons screw- the- middle-class shut down.

    “Hammered” by taxes? I don’t think so. But I DO think you’re apologizing a little too much for a bunch of people who could not care less about what’s happening to the middle class in this country and who have hired lobbyists to make sure status stays quo.