Should the Rich Pay Higher Taxes?

While Congress debates extending the Bush tax cuts, the question on most Americans’ minds is: How will this affect to me? Here’s the answer.

Editor’s Note: This story was originally posted in 2010 prior to the compromise that left tax rates unchanged for all Americans in all tax brackets. In July 2011, thanks to the debate over raising the debt ceiling, the issue is back on the front burner. So here’s a look at what raising the taxes of the wealthiest Americans will mean.)

Paying taxes is perplexing enough. Trying to figure out what Congress will do about the Bush tax cuts is downright confusing. Here’s the history in exactly 60 words…

President Bush’s Jobs and Growth Tax Relief Reconciliation Act cut all sorts of taxes – individual, estate, capital gains, and dividends – in 2001 and 2003. But to get Congressional support, Bush set the cuts to expire in 2010 unless Congress extended them. Liberals hated the idea, conservatives loved it, and ever since, experts have debated whether Bush’s cuts have hurt or helped the economy.

So this is where things stand: If Congress does nothing, the tax cuts fade away and the tax rate returns to 2000 levels. But almost no one thinks Congress will do nothing. The debate is whether to keep all the cuts (Republicans) or eliminate just those just on the rich (most, but not all, Democrats). “Rich” in this case means an adjusted gross income of more than $250,000 a year for married couples filing a joint return or singles reporting more than $200,000. If the politicians plan to lean on the polls, they’ll be confused…

  • A Rasmussen Reports national telephone survey at the beginning of August showed 48 percent of Americans want to keep the tax cuts even for the rich – but 40 percent don’t.
  • A CNBC poll last week revealed “40 percent said tax cuts should be canceled for higher-income taxpayers.”
  • A Pew Research Center Pew Research/National Journal Congressional Connection in mid-September declared an even split, with 29 percent supporting extending the tax cuts for all and roughly the same amount (28 percent) saying not for the wealthy – and with 28 percent saying let all the tax cuts expire for everyone.

But here’s the fascinating part most folks don’t know: If President Obama succeeds in rolling back the tax breaks for the wealthy, some well-off Americans will actually pay less.

Those in the top two brackets will certainly pay more if Congress lets their cuts expire, but some near the bottom edge of the new 36-percent tax bracket will receive a small windfall. Here’s why: Someone on the edge of that bracket will have only a small part of their income would be taxed at 36 percent. But most of their income will be taxed at broader lower brackets. The result? A tax reduction.

As CNN pointed out, “Take someone with a taxable income of $210,000. Last year, they owed $54,000 in taxes (assuming one personal exemption and a basic standard deduction), but they would owe $53,512 under the new tax bracket, amounting to a $488 tax reduction.”

Of course, if you make more than $250,000, you could owe much more, from a few hundreds dollars to many thousands…

Say you’re a single filer with a taxable income of $250,000. This year, you owed $67,617 in income tax under the 33-percent bracket. Under the new system, you would pay $67,912 in taxes next year, a slight increase of $295. But those people making more than $300,000 are going to owe additional amounts in the thousands. For instance, if you make $382,650 you’ll owe an extra $4,095 in income tax. Single filers with $500,000 in taxable income would owe Uncle Sam an additional $9,492 from this year’s tax bill. Meanwhile, joint filers with taxable income of $700,000 would owe $232,396 in 2011, an extra $17,088 from $215,308 in 2010.

Late last week, Senate Democrats postponed the debate until at least November 15, the date Congress resumes after the November elections.

No matter how it turns out, the President will win – if taxes for big earners goes up, he scores a political victory. But if the Bush tax cuts remain in place, he scores a financial victory. Because President Obama filed jointly with his wife Michelle and earned almost $5 million last year, without the Bush tax cuts in place, his tax bill could jump $200,000 in 2011.

Stacy Johnson

It's not the usual blah, blah, blah

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  • Anonymous

    Dear Stacy,
    I think a flat % tax should be born by all. I think taxes that target the low and medium income people need to be repealed. What taxes ? How about the extra tax on cigarettes and beer ? If they needed more tax money why didn’t they impose higher taxes on motor vehicles priced at and above forty thousand dollars ? Can you find out why the rich hate / despise Americans so much that they would rather build factories on foreign soil? Why do the rich hate Americans so much that they enjoy watching them lose their homes to forclosure. Hate so deep that they would watch ” our ” children starve and die due to lack of medical coverage. Hate so deep that they would watch Americas financial system crash because we no longer have a tax base . Yes, they disgust me, but taxes should be based on a flat percentage, no ” loopholes ” . Ralph

    • Silas you are so lost. Why should people pay more to buy a decent car? And i consider the cigarettes and beer tax to be good as it makes hurting yourself more difficult. and why do you think the rich despise americans? think about it if you were rich would you want people saying “oh hes rich, that jerk hates americans, lets sit around and get money from the government and let him pay for our lives.” And like stated earlier children arnt starving in america. If they were whys our obesity rate so high? ill give you the medical care sucks part cause of stuff like obamacare trying to be imposed. Companys build on foreign soil cause the government requires too much from buissnesses, why should you pay like $20,000 more to get a 10th employee? Why not go to somewhere like china where i dont have to pay that tax and pay workers like 1/4 of american cost?

  • Ralph, not sure what you would do President as you do have one person that liked what you wrote; you resort to emotions as I read it, despise, build factories off shore, hate Americans; capitalism works just fine, and yes we need some Government oversight and for those caught stealing so to speak, they like any hardened criminal should face the consequences and be lead out of their home or office in chains. As goes flat tax I could get into that, no loopholes, they are not loopholes, they are provisions set up by your government so that legally you or any person with the ability to take advantage of the provisions should and is simply acting in their best interest. Children do not starve in American and do not go without medical care UNLESS the person that has custody fears being seen or recorded in the public sector; get a life and know what your country does for so many, of course things need to be improved, key is in American we have always had things to work on and over time we make progress; NOW as goes the IRS and soon the IRS having more enforcers to watch you and I under the Health Care Provisions, the problem is not rich people as both you and I could become rich, however, government out of control in your personal life cannot be controlled. Think about this, soon you will be buying light bulbs that are to save the environment yet have mercury as contents. Our government unlike you or others gets away with miss appropriations, blow civil responses, and yet comes back for more money to get bigger, how about accountability. As goes taxing more for a car that cost more than $40,000, what if finally after years of working hard you are ready to buy your dream car, should you pay more taxes assuming you are not one of those rich cats you hate. And how about the business person that rarely takes a vacation and frankly is tied to their business day and night, and yes they do make money and perhaps have income over $250,000, does that make them rich — I don’t think so as you could be that person who sacrifices so much to simply have the business while some high paid Government Bureacrat makes almost as much, flies in Government planes, is home for every holiday and generally lives the good life. So Ralph I will join you to revise our taxing policies but I will never envy or hate those that make it big as my dream is to one day make it big so I have to play taxes.

  • Anonymous

    Since the tax rate in 53/54 Eisenhower era was 91% and 79% during Nixon’s era on the high income people, to increase the tax on the higher income individuals by 3% to a rate of 39% does not seem unreasonable. It is time that the republicans take a clear look at what they have become.

  • Anonymous

    This is probably going read as naive to some and ironic to others, but I’m going to refer you to the movie “National Treasure.” I’m specifically referring to the scene where Nicholas Cage’s character quotes The Declaration of Independence. I believe the idea expressed in that quote should apply, not only to taxes, but the government and our society as a whole. Here is the quote from the movie:

    “Of all the ideas that became the United States, there’s a line here that’s at the heart of all the others. “But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and provide new Guards for their future security.”

    In short, as Ben Gates says, “It means if there’s something wrong, those who have the ability to take action, have the responsibility to take action.”

    In my opinion, we need to forget about the politics of it all and start thinking about each other as fellow human beings. Remember that golden rule? Do unto others as you would have done unto you.

    These ideas may all seem trite and cliched, but that doesn’t make them any less true.

  • do_whats_right

    I think the rich should pay more in taxes. If someone makes over $250K a year they can afford it! That’s right! The problem is they don’t want to part with their money. Look at the guy who created Facebook. He is generous enough to do the right thing and give money to schools out of his own pocket! Anyone else? Do you see actresses and actors giving back? Oh right they invest in charities so that makes them ok. Wrong! The reason they invest is for a tax break!! Meanwhile Joe Schmo who works like a dog for his $30K a year, lives paycheck to paycheck, should be held in the same regards as the guy driving his million dollar yacht. That makes sense! That is the problem with this America. Look at the difference in pay from top level to low level workers. Huge difference!! Basically the lower level people are the immigrants of the company, while the top executives collect the money!! There needs to be a better system put into place. The only thing that is going to happen to this country, I fear for the kids today, is the rich will be richer, no middle class, and the poor will be poorer!!
    There is no reason someone making $250000 could not live comfortably. Just because they live beyond means, because greed went to their head, is not the rest of America’s problem. A person can live perfectly happy in a 3 bedroom home, with a 10 year old car, and food on the table. Whatever the whining is for, I have no sympathy, they made their bed now sleep in it. I think they should make a new reality tv show. “Walk in My Shoes”, where top level executives have to see what is like to have nothing! Something like the movie “Trading Places”. I feel bad for those families that have 2 parents working, bring home $60K a year with 3 kids at home, but you know what, they somehow make it work. Those are the people that deserve a tax cut!!

  • Anonymous

    do_whats-right. Have you ever considered that those who make $250,000 a year may have accumulated financial burdens to allow them to get to where they are in life? Many people in this country are not like the super wealthy. Most people do not make millions of dollars a year. Those that do are fractional compared to general population. Most people that make $250,000 a year have taken out hundreds of thousands of dollars in student loans to allow them to have a profession with high income. Not to mentioned the amount of sacrifices that they have put forth while studying in graduate schools when some their peers choose otherwise.

    Plus, not every city has the same standard of living as others. $250,000 doesn’t get you very far in cities such as New York. I know, and have experienced, many people who barely get by when they have student loans, mortgage for a modest home, retirement savings, child care, ridiculous amount of federal, state, and local taxes, and many other bills that they have to pay.

    Whatever happened to being fair in this country? Shouldn’t all Americans be treated equally? As your name says–Let’s do what is right by treating everyone fairly, and not to single out those who have worked hard in their lives to become successful.

    Since when being successful due to your labor and hardwork is an evil thing? As an immigrant to this great country, I believe that everyone has the ability to achieve their American Dream. It all depends on how much one is willing to work for that dream. I came from a meager back ground, with limited amount of financial resources, but was able to understand the importance of self reliance and the value of hard work. I make a good living and do not live beyond my means. I donate to charities and do pro bono work in my community for those that cannot afford health care on a regular basis. I only use myself as an example because I know there are many out there that do far more than I. Many of the high income families in this country share similar stories as mine. Don’t be so fast to point fingers when you fail to walk in other’s shoes.

  • Anonymous

    What happened to 2X2=4? $200K single = $400K married. Or why bother being married? It’s ridiculous to add another “MARRIAGE PENALTY” to the people.
    At one time $250K a year was rich. But not any more. By the time all the taxes are paid there’s not anywhere near that much left. Rich is more like $500K a year.
    The government should consider $500K single and at least $750K married.
    There are plenty of people that fall in that income category..
    Sure, back in the 50’s the taxes were higher but there were many more shelters, write off’s, and deductions than there are now.

    • Anonymous

      If I made more than $100,000, I would be rolling in the dough!  If you’re lucky enough to make it, quit complaining and pay your fair share.  At least you can afford the necessities and a few extras.  Some people can barely afford gas to get to work, groceries to feed their families and a little bit to add to savings so maybe they can retire someday.  I’d say $250,000 is an extremely nice income and if you have to pay $50,000 in taxes, it’s still not too damn bad.

  • Anonymous

    After you consider my bills. I would have to say that my family lives below the poverty level. I am far from rich and still do not understand why people feel it is the rich peoples obligation to pull the load. The true common sense for taxes would be a flat tax. Either way, the more money you make, the more you pay. I have ALWAYS thought it was crazy that people paid a different % based upon what they made.. that is unfair. So if I choose not to work and be a bum and the other guy gets up at the crack of dawn and works three jobs.. He is supposed to pay more taxes than my lazy but. ARE YOU KIDDING ME! I think it is going to take more people that barely make a living to open up their mouths and stand up for all. Don’t you think that I wish some rich guy could help my family out, have their higher taxes help pay for things that I cannot afford.. YES! It’s only human. Yet it is HORRIBLE for anyone to sit there and think that just because someone makes more money, they should pay a higher % in taxes. The reason why America cries so much about making the rich pay higher taxes is because they are not focusing on what truly is destroying everything. The horrible inner city school systems, the lack of proper family up bringing. I can move to a nicer city, yet I chose to stay in Cleveland, Ohio because of my roots. I am sickened everyday when I drive through the city and see drug dealers, gang bangers, tricks, run down buildings, etc…I live in fear of a home invasion every day. Sick and tired of being at the local grocery store and seeing countless people abuse the welfare system. Let’s keep in mind, I grew up in public schools, I know first hand that there are generations of families that have made an art of sucking off of the cities welfare system. I was in the Military and have seen such wasteful spending, etc.. BOTTOM LINE: The government already collects enough taxes and does not do enough to make sure it gets used properly. Too many people out there that CHOOSE not to work and freeload off of others. I may be among the poor out there, yet I for one do not believe the rich should suffer for all the other BS that this country has gotten itself into. Just don’t give them special consideration. Apply the tax % across the board fairly.. and offer more personalized programs to help those that need help.. Now If someone rich is outsourcing jobs overseas.. Then lets start making overseas look less and less appealing and put the jobs back into the hands of REAL AMERICANS and stop this madness of being a country who has become a consumer, not a producer! It’s simple math and common sense that shows you that the tax system is a complete failure when it comes to fairness. Instead of hustling the rich, you need to start making all the freeloaders actually work. I tell you right now.. If I was to ever be on welfare like so many of these worthless people I see in this city (not to imply that all are bad or abusive toward system) I would be humbled and look for ways to earn that handout. Put these people to work. If you are footing the bills with the welfare system, then start either truly putting people to work, or start using them to improve the neighborhoods they live in. NOT GONNA HAPPEN! You know why. Because common sense does not fit into politics.

    • Anonymous

      The wealthy benefit more from the infrastructure their taxes provide for than does the person with low income. Most people people with low incomes still work very hard, but they have much less to show for it. The system as it is provides for a pool of low wage workers which is of most benefit to the wealthy. All those public programs that support those who are in need of aid are ultimately maintaining a status quo where those that profit the most from them rarely use them themselves (the “rich”). The road to financial independence, a successful career, and better health is much harder for those without money, but these are the people that keep this country running. There is a startling inequality going on that you should be more sympathetic to. You are right to think that those that work very hard should be able to make more than those that don’t, but that’s not what is happening. 

  • I,m just a little guy – I,v worked in a mill for 34yrs them the company shut down and moved to China – laying off more then 850 tax payers, now I get unenployment and I have to learn a trade H vac at the age of 58 –  Q, who,s going to hire a man of my age ?…. O did I forget the other 849 people paid taxs too. Congress has ask me to help by taking more money from me and the family –  well what is Congress giving up ? –  your right – ( knothen ) not a thing in fact once this is all done with they will most likly give themself,s a raise. They are taking care of there own and saying whats in it for ME. Taxs , Taxs , Taxs , Taxs and you ges it more Taxs….. sorry about the spelling – I have a good Idea lets help somebody in trouble from somewhere else forget about our own PEOPLE. and lets take the Goverment Card to a Club and use it there we could call this a meeting….and do not forget to let the Limmo Driver and make sure He get Paid by the Card. when I go to lunch I pay for it.

  • Anonymous

    Chris– I think the reason to keep your factory here is to benefit your fellow Americans.  Do you make a decent living?  Do you like the amenities and freedoms this country provides?  Are you proud to vote on election day?  Do you vote? Do you care that people are dying to get into this country illegally?  If you do care, I think then you are willing to pay a little more tax PROVIDED there is really government oversight and the money is actually properly spent.  I know I would pay more tax to have OVERSIGHT and enforcement of laws, reduction of fraud, reduction of earmarks, and elections financed ONLY through public money without corporate or individual contribution.  

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