2011 Income Tax Rates: Raise Taxes On Millionaires Not Us

President Obama’s State of The Union address was well delivered.  He said almost everything right – from restoring spending discipline to improving education to allowing everyone access to affordable health care.  The one thing President Obama didn’t say correctly was regarding taxation.  He said illogically not to let millionaires get away with their tax cuts at the expense of X, Y, and Z.

Can anybody guess where the inconsistency is in President Obama’s words on income taxes?  On the one hand, President Obama attacks millionaires, yet he so strongly pushes to raise taxes on individuals making only $200,000 and couples making $250,000!  Last time I checked, someone making $200,000 a year isn’t making a million dollars.  And someone making $200,000 a year isn’t necessarily a millionaire!

SAVING FACE THANKS TO POOR NEGOTIATIONS

I was very disappointed when the Democrats rolled over so easily this past December and accepted Republican’s demands for no tax increases.  Sure, the Republicans wanted permanent tax rates and settled for a 2 year tax cut extension.  However, it’s clear the Democrats gave too much.  The budget deficit is a big problem, and by not raising taxes we will surely pay for our excesses because it’s not enough to just cut spending.  Poor children of America.

All President Obama had to do was raise taxes on millionaires, you know, the ones making over a million a year!  If you make $1,000,000 a year, there is no way in hell you will be hurting if you have to pay 4% more on any money made over $379,000.  Besides, the $379,000 figure is so arbitrary whereas $1 million, although still arbitrary, is less so given the vernacular we use to describe rich people.

There’s no way you will ever publicly complain about a 4% tax increase if you are making over a million bucks.  You can live in expensive Manhattan, and still live a damn good life earning $1,000,000 paying 39% in Federal taxes.  It’s not ideal, but it’s doable at the margin.

I’m absolutely convinced that Republicans would have agreed to a $1,000,000 income level threshold where tax increases kick in.  We have missed the opportunity to raise taxes on the true millionaires and billionaires of America whose revenue we so desperately need to pay down our deficit.  Leave the rest of us alone!

2011 FEDERAL MARGINAL TAX BRACKETS

Tax Bracket Married Filing Jointly Single
10% Bracket $0 – $17,000 $0 – $8,500
15% Bracket $17,001 – $69,000 $8,501 – $34,500
25% Bracket $69,001 – $139,350 $34,501 – $83,600
28% Bracket $139,351 – $212,300 $83,601 – $174,400
33% Bracket $212,301 – $379,150 $174,401 – $379,150
35% Bracket Over $379,150 Over $379,150

As you can see from the table above, the more you make the even more you pay.  I’ve long argued for a flat tax to simplify the tax code, raise tax revenue, and provide more incentive for people to do great things.  Tack on 5-10% state tax rates and it’s understandable why those making ~$200-$500,000 a year who live in expensive cities have something to argue about.  Slap on a 40% tax bracket for anything over $1,000,000 to ensure we capture the revenue of our multi-millionaire and billionaire friends and let’s pay off the budget deficit!

Readers, what did you think of the State of The Union address?  Why do you think the Democrats didn’t argue harder for the $1 million income threshold?  Doesn’t that make a lot of sense?

Regards,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. says

    I am personally against raising taxes much more on the “rich”, and by that I mean the truly rich. Even though I am not rich myself (heck I am currently the complete opposite) almost everyone who has ever given me a job is…..

  2. Travis says

    I think there is some confusion here between income and wealth. The word millionaire relates to wealth, not income.

    Someone with an income of $50,000 may be a millionaire, while someone with an income of 2 million per year may not be. Also, there are many millionaires who have zero income.

    If we’re talking about taxing wealth (other than property taxes, if that is considered wealth), well, that is pretty scary.

    • says

      I agree, and on the flip side, “Last time I checked, someone making $200,000 a year isn’t making a million dollars. And someone making $200,000 a year isn’t necessarily a millionaire!”

      $200,000 is way to low of an income level to target cart blanche. At least raise the level for people who live in the top 5 most expensive cities in America.

  3. says

    I work as a commercial lender in the South, and I will tell you what is crazy…

    I have a number of oil and gas clients that have a ton of personal annual cash flow from their wells (think $1MM to $2MM). But, do to a couple things called depletion and intangible drilling cost (IDC), their annual AGI always happens to be in the $40k to $100k range!

    How would you like to have that type of cash flow and pay little to nothing each year in taxes? There truly are certain industries that are major favored in the current tax code.

    For people like me who earn 95% of their income via W2 – there is no where to hide!

    • says

      Its true, the top 2-3% don’t pay near the % of tax that we, the bottom 97-98% pay. Just look up Soro’s, Kissinger’s, Gate’s, and Buffet’s income to tax ratios. Somehow they get away with paying near nothing. This is where the real deficit-busting power lies, but they own our politicians, so what can we do about it? Not a thing.

  4. Money Beagle says

    There’s the rub. The people that make the most money find loopholes, writeoffs and the like, and don’t end up paying much more than the average Joe does anyway. Hardly seems fair.

    That’s why I wish one of the points made would have been a re-write of the tax code. I think you could make a case for lowering the marginal rates simply by closing or eliminating so many of the ridiculous writeoffs that have complicated the tax code.

    • says

      I’m not so sure about that… By “not paying much mor ethan the average Joe does” do you meant total amount of money paid to the government? If so, I disagree.

      I do agree that the tax code is complicated and jacked up, but I think we need to remember that it’s jacked up to help the lower income earners too. That’s why over 40% of the lowest of income earners don’t pay federal taxes.

      I use to be for a straight tax because it would make life less complicated, but now I realize that it would also make it hard for that bottom 40%, so now I’m on the fence about it, but leaning toward keep the progressive structure. Besides, if you qualify, there are free online software packages to those lower 40% of the population (not to mention other help).

      It does suck for those of us that are in the middle though :(

    • says

      Well, the SUPER wealth gain their income through long term dividends taxed at 15%. Hence yes, those guys are killing it.

      You raise the dividend tax, but that could hurt Mrs. Jones in Florida living off a fixed income of $40,000/yr.

      Hence, just raise the dividend tax to 30%+ for anybody making over $1,000,000 on dividends too! If you can take home $1,000,000 in DIVIDENDS, that means you’ve got like $25,000,000 in assets at 4%!

  5. derringer says

    You need to be careful here… Its convenient to name a dollar figure above what you earn or above what you’ll ever earn and call it ‘fair.’ Its the same class and income warfare that someone making 30k a year can see raising taxes on anyone making over 80k a year. Don’t you see what you’re doing here? Pick a comfortable number over what you make or will ever make and then say its ok to raise taxes on that ‘group.’

    Its very easy to do, and I have to stop myself sometimes as well (no, I don’t make 1MM a year or even close.) But, at the end of the day, if you truly favor a flat tax, as I do, you can’t pick arbitrary numbers and say that a tax raise on those at X or above is fair.. it is not. It is jealousy, envy and class warfare. Its not your decision what someone making 1MM a year does with their money.. they made 1MM a year, just as you or I might make 200k a year or whatever the number might be. Don’t be so quick to levy tax on someone making what you consider to be a lot of money.. That is no better than the class warfare Democrats have been pushing for the past several years.

    • says

      I agree with what you are saying. Everything is arbitrary, so we need to find what level is the least arbitrary that would produce an agreement.

      At any rate, $1mil is a level I think the Republicans would have accepted. Democrats got the short end of the stick, esp with the estate tax.

  6. says

    I personally think a flat tax would be a wonderful thing. As long as the tax code is as complicated as it is, there will be loopholes and people will get out of paying taxes. I am sure a flat tax will not be a cure-all, but it would definitely help.

    I just get a bit frustrated with all the assumptions that we should just take from the rich all the time. Just because people can afford to spare more money, should they have to? Why should the well-off be forced to pay for everyone else? Why can’t we cut spending? Where will it end? Will 100,000 become the new ‘rich’ if we get desperate enough?

    It just fascinates me that someone can educate themselves and become successful, and get punished for it. (Oh wait, Obama said it wasn’t a punishment, I forgot…)

    • says

      It goes back to why are some people born with all the advantages, and others don’t. It’s tough.

      I’ve seen several government studies that have found that a 20-25% FLAT TAX above a certain income threshold produces the least tax evading, and the most tax revenue as a result. Bring it on!

  7. says

    I gotta be honest, watching Obama almost made me sick to my stomach. Most of the speech was glorified barking, with little to no actual meat to bite into. He talks about taking measures to cut our deficits, and reducing the reach of government, then at the same time, gets sarcastic about Republicans attempting to repeal his health care bill, which doesn’t reduce the deficit by that much (143 billion), and extends government power even further than it is now, by requiring people to purchase insurance, after 2016, or face a $700 fine, and at the same time, giving out exemptions to major corporations so they don’t need to front the costs of his health care. Oh, but lets put the insurance burden on the hamburger stand next to the McDonalds, surely they have the cash?

    I’m not sure I agree with your disappointment on the issue of raising taxes on ‘millionaires’ either. The fact is, those ‘millionaires’ are the heart of our society. You think, when they talk about ‘millionaires’, they mean Bill Gates, Warren Buffet? Absolutely not! Millionaires are the people who start their own businesses! Buffet, Gates and all these bank ceos who received bailout money are BILLIONAIRES. But of course, since they own our politicians, they’ll never see tax hikes.

    What we need, is a separation of corporate america and federal government. When these two reside together, the combined power is ultimately enough to hurt the rest of the population. I did like his promise to veto all bills with earmarks, but we’ll see if he comes through on that.

    • says

      It seems like a lot of people I know get sick to their stomach when he speaks. Maybe he is overexposed?

      I don’t get sick at all, and marvel at his oratory skills. I actually mentally take notes of how he pauses, enunciates, uses story etc. Quite fascinating.

      Again, I’m trying to figure out what income level would have produced an AGREEMENT last December. That level is $1 mil imo.

  8. Mike Hunt says

    If you increase the taxes above $1,000,000 the companies won’t pay out this type of salary anymore. Instead execs will get several company owned cars, housing, other perks, more dividend paying stocks, etc.

    Same with corporate tax- all companies take advantage of the loophole of keeping foreign made profits from coming back into the US unless there is an amnesty provision. That’s why the actual paid corporate tax is in the single digits.

    That’s the problem with Obama. The speech is great but it’s all sleight of hand. You walk away feeling pretty good until you think about it for a while. Then you get angry, but most of the other peeps are still in the feeling pretty good state of mind.

    -Mike

  9. Kevin @ Thousandaire.com says

    I’ve been saying this for a long time. There is a big fundamental difference between $250,000 a year and $1,000,000 a year. Ask these very wealthy Americans to increase their tax burden a bit and help pay for the country that has allowed them to prosper so much.

    You nailed it Sam!

  10. says

    It’s funny when Obama talks about tax cuts at the expense of x,y,z when 47% of Americans don’t even pay federal taxes. So, who are they taking from? The joke is we’re just borrowing from future generations with no intention of paying it back ourselves – shameful.

    And yes, the Republicans would have balked at tax increases even for $1 Million +. The claim is that the small business owners would be impacted. I’m not so sure anymore. The reality of the situation is that taxes must go up on everyone, no sacred cows. We’re showing deficits of $1 Trillion per year as far as the eye can see and it increases further after 2020. It’s a mathematical certainty that this is not sustainable, yet very few will publicly admit this and suggest cuts to reign it in. The deficit commission was muted. Dems won’t even discuss future projections.

  11. says

    Sure, slap a 40% bracket on 1M earner, why not. :)
    I only heard snippets of the speech yesterday so I’ll have to listen to it today.
    Do small business owner really make 1M/year? Sure, revenue can be 1M, but profit? If they make over 1M, they can afford to pay a little more tax.
    Those 47% people needs to pay some tax, I’m tired of carrying their dead weight.

  12. says

    The State of the Union address is intended to provide information, and perhaps be encouraging. It is what goes on behind the scenes that is important! Can the Democrats and Republicans agree on anything substantial? When you look at the overall number of democrats and republican, you see there is a republican majority in the house and a democrat majority in the senate. The real numbers are much more confounding, because of all the variations of conservative and liberal. Therefore it is very hard to get enough votes to pass what is right for the country. Also, far too much re-election politics going on! I believe we will see more agreement between the many factions, but the results may be just a little better. As far as the million dollar tax threshold, the Republicans and conservatives will stonewall that change for sure. Maybe, if spending is more effective, they may deal with the revenue (tax) side eventually. I wonder how much will be accomplished for the next election campaign? They will be in campaign mode in the next 6 months, right! When do we get effective government?

  13. says

    I 1000% agree Sam! If Obama just said 1mil from the beginning I bet he would have gotten it right in. Funny how he didn’t mention the Estate Tax which he successfully signed into law that instead of affecting the top 2% it will only affect the top 1% (maybe less) lol.

  14. Patrick says

    I agree with retirebyforty, how about we target the people who pay no taxes before we go after those who do.

    I think Congress needs to stop passing the AMT waiver and make every citizen pay taxes. Even if it’s just $100 that’s still better than nothing.

    If everyone had to pay and there was no getting out of it, then being on link card and receiving several other government programs would make people upset knowing that they are paying for someone elses meal. Right now there are to many free lunches and that needs to stop long before we make millionaires pay more.

  15. david M says

    How about companies and not individuals. What if we had them pay taxes on whatever they show as income on their audit financial statements – that would bring in a lot more money then they currently pay.

    When people get on their soap boxes regarding high corporate taxes they will quote you the statutorial 40% tax rate. I don’t know the actual rate but I’m going to guess, Microsoft, Coca Cola, Merck, etc, pay substantially less than 40%.

    Make corporations pay a fair share and then increase individual taxes on EVERYONE. We need to do something about this budget problems before we become a third world nation.

    • says

      We already do tax corporates a very similar level that we tax individuals. If we raised taxes on corporates more, they’d hire less people or pay us less. They already face double taxation with divdends.

      • david M says

        I am in favor of lowering the corporate tax rate. I just want corporations to pay the taxes on the profits they show on their audited financial statements. What makes no sense to me it that you can have 2 companies showing very similar profits but paying VERY different tax amounts.

        What we especially need to do away with are all the provisions in the tax code for different industries – if its a legitimate profit – pay taxes on it.

  16. says

    I think raising the taxes of the rich is somewhat useful. But it may take a lot of conferences to have this accepted 100 percent. But as much as possible taxes should be equally paid by everyone of us. David M. is correct.

  17. Charlie says

    I only watched bits and pieces of it. I think the flat tax would be great. Raising taxes on people in the 200-250 range isn’t going to help our economy. I agree that it should be higher and 1mil sounds like a good number to me.

  18. says

    Hey Sam- Quick heads up- your RSS (from yakezie.com and other places). Looks like it’s currently pointing to an article about “are women more naturally trustworthy”….but when I click it I get a page cannot be found. Don’t know if others are experiencing the same thing.

    • says

      Gotcha. Yeah, I posted it today inadvertently, but decided to put it back in draft and post it on Friday instead. Sorry for the confusion. I have too many posts, and want to give this one as much airtime as possible.

  19. says

    i am all for a capitalist system under a certain threshold, and then all for a socialist system over that threshold. i think that is what we are getting at here with the $1M discussion. but then again, who am i to decide what that threshold is? i keep struggling with that question – it is all relative in the end. also, i struggle with two different tax treatments whether one is above or below the fold. certainly a never ending discussion/debate as i have experienced.

    on another note, with Japan’s upcoming tax cuts in April or August i believe, the USA will be the highest corporate taxing jurisdiction globally. it already is i believe from an “effective tax rate” perspective. are you planning on writing on that puppy?

  20. says

    I totally agree with this post. If you are raking in $1 million a year, a 3 to 4% tax increase is nothing. I think that Democrats are in the pockets of the rich just like the Republicans.

  21. Marc says

    3 things to think of if you want to tax the “rich”
    1. Income variation-not everyone is in the same bracket every year. Real Estate agent 2006 great. Pay 33% rate on you money but when you income is dismal you don’t get a rebate because your average 5 year salary is only $50,000. Same if you work on commission.
    2. Income Dependence- California’s budget is so variable because it depend on the incomes of the top 40,000 filers because the tax rate is so steep. They do great, boom times, they do marginal massive budget cuts
    3. Buy in- If most people don’t feel any real pain in taxes because only the rich pays them then is becomes increasingly easy to spend more & more because other people are paying for it. Unfortunately the rich really don’t pay because it is too easy to spend some money on experts to avoid taxes.

  22. damon forreal says

    GOVERNMENT needs to get it’s WASTEFUL SPENDING in check before they waste time figuring out how to get more $ out of us. Who wants to pay taxes when $60+ billion is lost to waste and fraud in just the war alone?! Living in a “FREE” country wasn’t intended to mean the government is free to do whatever they want without consequences or accountability. That’s the impression we are giving to the rest of the world. I want to be PROUD to be an American again…sooner than later

  23. Nanette says

    Yes, this country is having a hard time and many in America are hurting bad! but I am ashamed of this government and some of it’s people thinking that “class warfare ” is okay! Now that this administration has raised our deficit so high we can not even see tomorrow, the way Obama sees it is , let’s take more from the very people who have worked hard and are living the American dream, after all what right do they have at earning and KEEPING their income! This is what other countries have done and it is called socialism! First this government has to get the waste and fraud under control, this government has gotten so big it has no idea where all our money is going! Our government needs to get rid of over half of it’s regulations on companies! I tell you this…if we keep going on the same road we are going down, we are doomed as a country!

  24. Bear says

    Very well said. This is where the problem lies…many people use the word rich, and lump Warren Buffet with the family next door that has a big house and Suburban.
    People making $250k/year are much more similar to blue collar workers, than to CEO’s.

  25. Deric says

    I’m in favor of a sales tax on everything that is not deemed an essential item. This targets the rich and the poor. Plain and simple, you need only make a few dollars to feed yourself and provide shelter, but entertainment, luxury, and the like would have big taxes. This could only help us since the rich do buy lot’s of expensive stuff!
    -Exempt homes that are under 1000 square feet
    -Exempt cars that have no luxury features and meet a green standard (this would spur the growth of alternative energy)
    -Exempt food
    -Exempt basic clothing that meets a universal standard similar to military uniforms (not in looks, but in function. You can purchase any amount of items that are part of a standard ditty bag: Cold weather gear, undergarments, summer clothes, foul weather gear, etc…)
    -Everything else would be graded by function: Decorative? = High Tax, Functional? =Low tax, Decorative and functional? =Medium tax.
    -Exempt hand crafted items that are sold by individuals during the first sale of the item.
    -Track income by source and amount. Audit those (semi-frequently) who make more than the median AND have non institutional proof – making lots of money from a good stock is easier to prove than making lots of money handmaking candles at home. (making above median wages by selling handmade candles huh? We’ll see about that….)

    • says

      Not a bad idea. Gonna be hard to vote on what’s luxury though. Should be more done by city or states as it’s different everywhere.

      1,000 sqft house in Iowa? Donno! In SF, sure!

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