Are The Top 1% Getting Screwed The Most?

Chopped Off CockThe debate rages on whether the top income earners who pay most of the federal taxes or the bottom 47% who pay little-to-none of the federal taxes, should pay more taxes and help our country.  Clearly, the answer is that everybody should pay some federal taxes, since everybody is benefiting from the federal government.

Have you ever stopped to think who is really being screwed here?  If you are paying little-to-no federal taxes, is the government, rich people, and corporations really screwing you?  If you are in this situation, are you hoping to pay more taxes so you can get screwed more?  You can’t have it both ways now.

Perhaps the people really being screwed are the “HENRYS”, the Higher Earners Not Rich Yet folks who are in the top income tax brackets (33%/35%), and who don’t make the majority of their income from dividends and long term capital gains which are taxed at 15%?  This is something to really think about here, because for some reason, people equate the Top 1% with the Top 0.1% who are indeed like Warren Buffet paying a lower tax bracket than many of us middle class citizens.

Here’s a quote from Edward which sums up the point quite well:

If you want someone to blame for your high effective rate of taxation (which isn’t really that high internationally) it is less “welfare queens” and more a system in which actually working for a living is disincentivized. You’re right about the bite of taxes if you’re a high wage worker (say lawyer, doctor, CFO at a small company). You’re easy to track so you’ll probably be paying close to 30% in income tax, 6% in payroll tax, 8% in state tax, 1-2% in unemployment fund taxes plus sales tax, fees and all the rest. Heaven help you if you’re a small business owner earning a few hundred k and eat self employment taxes too.  It’s not hard to go above 50% of earned income if you’re a hard working small business owner in the 130k+ range.

On the other hand you have rich people who are not high wage workers. Who didn’t spend decades of blood, sweat and tears getting either themselves or their small business into a position to have the enviable problem of a 400k paycheck. They are the “investor class” who pay 15% on most of their income since they’re buying and selling stocks is somehow privileged over letting everyone else do the real work that makes that stock rise.

Not only is there a much lower income tax on long term capital gains, but of course payroll taxes, unemployment taxes and all the rest fall away too. This isn’t even getting into tax dodges like “like kind” exchanges which can let you buy and sell investments with literally 0 tax liability year to year or carrying forward losses to offset taxes on gains.

Warren Buffet and Bill Gates mentioned that with their investments and portfolios they could literally defer any and all taxes until after they’re dead. One of the world’s richest man can literally pay nothing in taxes for a decade or more in our current system while a Manhattan lawyer who grinded it out for 20 years of school and 10 years of 80 hour weeks eats a 50% effective rate.

That’s where HENRY (high earnings not rich yet) comes from, the teeming masses of strivers who do actually pay a lot of taxes. The almost rich who subsidize the super rich investor class. Honestly none should be out more forcefully against the wall street plutocracy then the high income worker since nobody gets screwed over more in favor of Wall Street types then them.

Thoughts everyone?  Should the people right around the 1% be the ones protesting instead?

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Photo: Chopped Cock, Delos, Greece, 2011. Sam.

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. The Genius says

    If the 47% who pay no federal taxes disappeared, from an economic standpoint and the health of the country, we’d probably strengthen a lot.

    If the 53% who pay all the federal taxes disappeared, there will probably be mass chaos and poverty for a little bit, but they will assume the roll of the 53%.

    The HENRYs should have the most beef.

    • says

      Not really. Again, economically speaking, do you realize how expensive simple things would cost if all the cheap labor went away.

      Do you know how to fix your engine, replace your roof, or educate your children? Do you have the time to do so?

      With no cheap labor, you either need to learn or you’ll need to prepare for a higher living budget.

      • says

        The cut off point for the top 50% is $33,000 in income a year. I think my auto-mechanic makes at least $100,000 a year in SF given he owns his own shop. Teachers make $35-80,000 a year here, and roofers also make $50,000+.

        Just want to make sure that everybody knows if you’re in the top 53%, that income a year goes all the way down to about $28,000 a year or thereabouts.

    • Jay says

      The reason the 47% don’t pay taxes is because the Republicans gave them tax cuts due to the fact they didn’t want to raise minimum wage. Do you SERIOUSLY expect a guy making $14K a year to pay taxes? Raise the minimum wage so people have AT LEAST a CHANCE to fight for their lives and maybe you’ll see tax revenue from them.

  2. says

    The quote says: “On the other hand you have rich people who are not high wage workers. Who didn’t spend decades of blood, sweat and tears getting either themselves or their small business into a position to have the enviable problem of a 400k paycheck. They are the “investor” class who pay 15% on most of their income since they’re buying and selling stocks is somehow privileged over letting everyone else do the real work that makes that stock rise.”

    It sounds like it’s about people who “never had to work”, but doesn’t this also include people who earned a modest income and saved a lot so that they could build an investment portfolio over time? It looks like everyone is forgetting the “low income but wealthy” (LIBWEL?).

    In a comparison that could be straight out of the Millionaire Next Door, you can get a lot of tax advantages from having a lower income and using it efficiently rather than being a lawyer who rewards themselves with a luxury car for graduating from school. The “HENRY” is just as likely to be “High Income, Never To Be Rich” and not just because of taxes.

    I guess I’m advocating consumption taxes now :)

    • says

      A consumption tax will hurt the lower income folks the most. Perhaps a consumption tax on everything but food. You only need so many shoes, clothes, and cars.

      Never heard of LIBWEL. Interesting.

      • says

        Consumption is really its own tax because those who can’t control it give away their wealth (I’d like to officially abbreviate High Income, Never To Be Rich as HINT). In fact I’m pretty much focused on this end of personal finance and don’t think about taxes much. I have some pretty aggressive financial plans and I just don’t see the use of earning $380k other than to impress people who don’t matter to me.

  3. says

    The HENRYS should be out for blood, but we are too damn busy working our asses off. hahaha. :)
    Clearly I would rather live in the 53% society. People would have more money overall and economic inequality flattens out. On the other hand, there would be no kids and only a few seniors in this society.

    The 47% country would look like Vietnam or some other poor countries.

    Read my current post on why Economic Inequality is bad for the country. I’d like to hear your thought.

  4. says

    Sam, I am going to be a contrarian! My goal is to be in the highest tax bracket possible so I have the problem of reducing my taxes. See, I did it successfully before. When I owned income property, I successfully paid no income taxes for many years. Businesses and property owners can reduce their income tax exposure legally by using depreciation.
    Being in a high tax bracket gave me opportunities to reduce my income taxes that others did not. Most rich successful people have access to experts (CPA & Tax Atorneys) to help them. If they do not take advantage of the tax laws they have nothing to complain about. Poor people do not have a choice or certainly less choices. Maybe that is why we give them some relief.
    Now to answer your question. If you remove all the poor people who will do all those jobs, no one wants to do? Yes, you removed the drain on services and taxes, but those jobs still need to be done. To convince people to do those jobs, the wages would have to increase and the taxes would be higher. Removing the rich is not a choice, we need the “builder” of businesses, capital and jobs. We need each other to thrive in society.

    • says

      Why not have the 30-53% of the 53% do “those jobs” that you refer to and redistribute the wealth and labor again?

      Not saying I want the 47% expunged, just thinking about extremes to come to a higher understanding.

    • says

      It’s not just about the jobs – who would buy from successful businesses? If there were only lawyers and accountants in the country they would spend all try figuring out how much it’s worth to sue each other :)

      People who over-consume, whether their income is $10k or $10m, will gradually fall behind those who prepare and make sacrifices. Many readers here are probably on the “receiving wealth” end of this but we couldn’t do it as easily without those who give it up mindlessly.

      • says

        I agree with you! A great society like ours has an abundance of choices. If yo wipe out a group of people to will limit the choices as consumers as well. If everyone were rich, all the restaurants may be too expensive for my taste. There would only have Tiffany’s, Mecedes Benz or other expensive choices. The more diverse society is, the better it will be. Many of our (U.S.) greatest accomplishments were from immigrants and they started out poor.

    • says

      You paid that depreciation gain back when you sold though, right? If anything, you got a temporary tax-free loan from the government through delayed taxation, but you definitely didn’t realize all the depreciation as an outright gain. Companies put off their taxes all the time, but that doesn’t make it wrong, nor a necessarily large advantage, IMO.

      • says

        You are right the gains are deferred. My final tax rate was at a capital gains rate. I see no problem using the system to your advantage. Rich succesful people do it all the time. There is nothing illegal or immoral about that. My point was I came up with a solution to the high taxes by using the system vs. compaining about it.

  5. Travis says

    I can tell you, I am in the top 1%, and I feel like I’m being raked over the coals. I make a measly $1.2 million a year at my current job, and I work pretty damn hard for it! I only get 25 vacation days a year to enjoy my beach house in the Hamptons… And to have to pay federal income taxes of $336,000 (I’m in the 35% bracket, but my CPA and financial advisors brought me down to an effective 28%) leaves me with $864,000 to try to live on! And then take out payroll and property taxes (I live in TX so thankfully no state income tax!), how can anybody make it in this world??

    I would much rather live in a world without the 47% bottom feeders of elderly folks on a fixed income and families of 4 making $50K a year… who needs them? I already hire illegal immigrants to clean my houses.

  6. says

    Well, I wouldn’t want either group to be expunged because I think those that earn in the lower brackets do a lot of good for the country (like social workers). Obviously, the country would financially collapse without the higher bracket.

    None of it matters though because Deepak Chopra will redefine capitalism for us!

  7. says

    The tax system is so screwed up on so many levels, one does no know where to start! I look up lots of tax information on IRS.gov and it never ceases to amaze me how complex every aspect of our tax system is.

  8. says

    I like what Krantcents is saying: Essentially figure out how the rules of the game are structured and use them to your advantage. A little bit of knowledge can go a long way.

  9. says

    I’m glad you’re bringing back HENRYs. After it fell out of CNN Money I was kind of angry – it makes the point that high earners don’t necessarily have a huge accumulation of wealth.

    Plus they might just live in the Bay Area, New York, Boston, or Washington, D.C.

  10. Patrick says

    What amazes me is the people who want to destroy the rich only need to look at Greece to find an example of what happens when you pander to the lowest common denominator and use socialism as a means of redistributing the wealth.

    Socialism has not, can not and will not ever work in practice. Human nature will always find a way for one person to have more. If it didn’t then we would be wiped out as a species and would never have evolved to where we are today.

    The biggest problems facing the American society are lack of values, principles and education in the sciences. In a country with over 9% unemployment, some of the best colleges in the world and we can’t find enough qualified people to fill the thousands of STEM vacancies. For those that don’t know, STEM is Science, Technology, Engineering, Math. There is a reason the government grants so many H-1B Visa’s, it’s not because they work cheaper, it’s because to may American’s got college degrees in liberal arts instead of applying themselves and actually learning a tangible skill.

    If you believe in liberty, freedom, no taxation without representation, then you should be appalled at the OWS crowd. They would sacrifice their liberties and yours and therefore are deserving of none. If all these people can protest, yet still manage to have their iPhones even in poverty and protest they have access to greater wealth and luxury than 3/4th’s of the world’s inhabitants. It is time for a wake call, I think a nice 6 months in Afghanistan fighting the Taliban would do a majority of these people a world of good.

  11. says

    To add to your point about everyone paying Federal taxes, everyone should pay at least some state taxes too because there are tons of state programs and public areas that we all benefit from. If only the tax system was simple and easy to reform. I fear it will only get more and more complicated though, so it’s probably a good move to become a CPA or a tax attorney b/c the demand for tax expertise and advice is only going to increase.

  12. says

    “That’s where HENRY (high earnings not rich yet) comes from, the teeming masses of strivers who do actually pay a lot of taxes. The almost rich who subsidize the super rich investor class. Honestly none should be out more forcefully against the wall street plutocracy then the high income worker since nobody gets screwed over more in favor of Wall Street types then them.”

    The only problem is we are so busy making money we have no time to stand out in the freezing cold, holding up signs and chanting slogans.

  13. says

    I have such a hard time seeing the 99%’s point. Even less so, those who pay nothing. The bottom 47% who pay nothing are essentially living off the 53%. Everyone protesting in the parks and streets are living off the bailouts the government is passing – at least the banks paid them back. Do people who collect unemployment have to pay it back later?

  14. says

    I struggle with this because I aspire to be in the 1% by saving my money and working hard at young companies and helping grow them into successful ventures — if I “win”one day I might be a millionaire, and I’ll invest my money because the prize of winning is investing and having capital gains tax rates for growing a million dollars into, ideally, a few million over time. If I lose, well, I’m middle class forever, and I guess getting screwed. But if you can’t have the 1%, what is there to dream towards when you are working 80 hours a week?

  15. says

    The problem with Edward’s statement “Honestly none should be out more forcefully against the wall street plutocracy then the high income worker since nobody gets screwed over more in favor of Wall Street types then them.” is that those Wall Street types, working 15+ hours a day are obviously working! They are not the “investor class” that he mentions earlier. The investor class is not working like dogs on wall street…

    Most of the millionaires in society are from modest backgrounds, with only around 15% that have inherited their wealth.

    So to me is sounds like Edward want to start a 99.9% club, but that’s foolish too because the HENRYS today many well be in the .1% club someday. To me such an argument is like sitting on a tree branch sawing it to make it fall, but while your sawing, you’re mistakenly on the wrong side of the branch and fall along with the branch. The branch is obviously the opportunity to become rich so you don’t have to work 15+ hours in your 80s…

    I think everybody is looking 2 feet in front of them instead of 20 years down the line. What we do today may hurt us all as an country on down the line.

    To destroy the rich destroys us as a whole. There has been many time in history where the rich has come to aid the entire country from ruin. Don’t believe me, read about the real J.P. Morgan from the past, or even Benjamin Franklin…

    The US is great because of great people not because of mediocrity. This is why Russia and China altered their models of socialism. Disincentive to work, make us all a country of grasshoppers.

    • says

      I learned a new word today.

      1. Ineptocracy
      *_Ineptocracy_****(in-ep-toc’-ra-cy) – a system of government where the least

      capable to lead are elected by the least capable of producing, and where the

      members of society least likely to sustain themselves or succeed, are rewarded

      with goods and services paid for by the confiscated wealth of a diminishing number

      of producers*

  16. says

    Good to know the investor class contributes nothing, and only gets rich off the backs of others. That might be the most ridiculous thing I’ve ever read.

    • says

      I have to agree with you here. WTF was he thinking? I’m sure it was the investor class that helped fund the school in which the lawyer graduated from. It is also the investor class who provided money to states, schools via bonds.. People should be careful who they try to upset :-).

  17. says

    From what I noticed in our 12 months in the US, you also have a HUGE issue with people who life off welfare. Let’s be serious: many of them can work and earn their money and not have the ‘state’ pay for their rent and car. We’ve seen some very expensive cars driven by people who are on food-stamps and receive help, because they’re ‘poor’, but don’t work and just expect others to do something for them.

    At the same time our friends who earn close to 200.000 / year, work their socks off so that they can earn a living. And pay A LOT OF TAXES, while driving less expensive cars and clipping coupons, so that others can receive welfare and buy cars and waste time.

    We have a similar issue in Romania too, with a lot of ‘beggars’ who receive help from our state and could work with no issues. I have no problem to help seniors who are retired, since they’ve worked all their lives, children and disabled people who cannot work. We’re not in a jungle to eat the less strong people. But, when A LOT OF MONEY goes to people who are plain LAZY, I can’t say I really enjoy the situation.

  18. CLARENCE SWNINEY says

    America is tracking the trend line to End Of Empire laid by
    Rome-Spain-Holland-England
    Over extension worldwide on Debt.
    Small group own most of the wealth
     
    10% own 70% net wealth  80% own 15%
    10% own 70% financial wealth  80% own 7%
    10% take 50% individual Income  50% take 13%
     
    70/15  70/7  50/13  = 190/35

    Simplistic– clear picture—can you see it? Congress cannot! White House cannot!

    Each of 10% own $7 of net wealth and each of 80% own $0.18
    Each of 10% own $7 of financial wealth and each of 80% own $0.09
    Each of 10% take $5 of individual income and each of 50% take $0.16
     
    $7  to  18 cents ratio: 700:18
    $7 to 7 cents 700:7
    $5 to 16 cents 500:16

    Is that not a picture of Third World Country?
    Is that not a picture of England in End of Empire?
    Is that not a picture of a Dictatorship
    I cannot paint a clearer picture but sadly our president is too busy preaching to his choirs
    The members of congress are too busy counting $$$$$$$$$$$$$ from Wall Street.
    Ministers of America $$$$$$$$$ Got Your Tongues?
    Where are our leaders? Counting $$$$$$$$$$$$$$$$$$$$$??????
    If my numbers are wrong advise cswinney2@triad.rr.com I correct.

  19. G$ says

    Sam,

    I think you hit this topic spot on, the entire conversation right now about taxing the ‘rich’ making over $200K a year is really just a distraction.

    There are special tax breaks and loopholes for the elite. It is well documented that some billionaires pay little to no taxes (using carry-forward losses from other corporations, shifting income offshore, special exemptions that allow them to pay no tax on gains from qualified stock, etc.)

    The majority of working professionals and small-medium sized businesses pay higher tax rates as earned income. These folks tend to re-invest those earnings in the communities around them. Are they rich? sure compared to someone making an average salary but they still work for a living. I think when most American’s imagine someone who is rich they see someone who doesn’t work for a living and those people don’t pay income tax because they make their money on investments.

    I really enjoyed this except from the New York Times to proclaiming that the “Richest Are Leaving Even the Rich Far Behind.” Indeed the income disparities within the top 1.5% are quite drastic. While households in the top 1.5% of households had incomes exceeding $250,000, 443% above the national median, their incomes were still 2200% lower than those of the top .01% of households. One can therefore conclude that almost any household, even those with incomes of $250,000 annually are poor when compared to the top .1%, who in turn are poor compared to the top 0.000267%, the top 400 taxpaying households.

    • says

      It would be nice of the world focused on the top 0.1%. The top 1% are a dime a dozen, even though the facts state otherwise. Two Stanford Business school grades make $250,000 combined when they first graduate.

  20. Dusty says

    This article is misleading. The rich do pay more in income tax but the poor/middle class pay way more in other taxes. That’s right folks there is more than one tax. This is why article like this are such a lie. First, what ever happened to state, local, property taxes, payroll, and sales taxes? These figures don’t include such taxes. I would also put state lottery’s(poor mans tax) on the list but that is debatable. I’m pretty sure that rich don’t buy lottery tickets much!Do your homework and you’ll find out that the rich pay around 0 to 15% in taxes while you pay around 20% to 35% in taxes. Also don’t fall for the double taxation junk that these guys claim. Their “corporation” is taxed and they are taxed because they are considered as an employee of the corporation. They could have decided to not make a corporation, but then they would have to go to prison when their company kills someone.

    • says

      Are the rich exempt from property taxes, state income taxes, and sales taxes?

      If state tax is 10%, how much does someone making $350,000 pay in state tax? $35,000.
      How much does someone making $25,000 pay? Maybe $2,500.

      Are we really arguing this subject?

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