President Joe Biden and congressional Democrats want to raise taxes on the rich to pay for their $3.5 trillion plan to expand the nation’s safety net, saying the wealthy should pay their fair share.
The rich would be hit in a variety of ways under the proposal advanced by the House Ways & Means Committee.
The House legislation calls for reversing a key plank of the Republicans’ 2017 tax cuts by returning the top marginal income tax rate to 39.6%, up from 37%. That new top rate would apply to single filers with taxable income greater than $400,000 a year and married couples filing jointly earning more than $450,000 annually.
AOC caused a stir with her statement-making Met Gala gown
AOC caused a stir with her statement-making Met Gala gown
That’s lower than the roughly top 1% threshold that Biden proposed earlier this year in his American Families Plan. But the committee’s plan also is in keeping with the President’s pledge that he would not increase taxes on those earning less than $400,000, which is more than 90% of taxpayers.
RELATED: The megarich have already recovered from the pandemic. It may take the poor a decade to do so
All told, the legislation would bring in an additional $1 trillion in revenue from high-income Americans, according to the committee.
“I’m not out to punish anyone. I’m a capitalist. If you can make a million or a billion dollars, that’s great,” Biden said in an economic speech Thursday. “All I’m asking is you pay your fair share. Pay your fair share just like middle-class folks do. But that isn’t happening now.”
Here are three things to know about the very rich:
1. It took $540,000 in adjusted gross income to get into the top 1% in 2018, according to the latest Internal Revenue Service data.
That’s the highest the threshold has been since at least 2001. (The agency changed its methodology so prior data is not strictly comparable.)
More than 1.4 million returns fell into this category in 2018.
The dollar figure had climbed steadily at the start of the century before plunging in 2008 and 2009, during the Great Recession. It began rising again as the economy and stock market improved.
The top 1% is not a static group, however. Only 30% of taxpayers were in the cohort for five consecutive years between 1991 and 2009, on average, according to 2013 research by Treasury Department Office of Tax Analysis economists.
2. The top 1% accounted for roughly 21% of total adjusted gross income in 2018.
The figure has fluctuated with the business cycle since 2001, hitting a low of 16% the following year and nearly 23% in 2007, according to the IRS.
Most of their income comes from investments, rather than labor. Their salary and wage income accounted for only around 11% of total salary and wage income in 2018, but for 67% of total capital gains income and for about 50% of total qualified dividend income, said Erica York, economist with the right-leaning Tax Foundation.
Meanwhile, the share of income reported by the bottom 50% of taxpayers was 11.6% in 2018.
The Tax Policy Center uses a much broader definition of income, including student loan interest, employer-paid health insurance, retirement plan contributions, employers’ share of payroll taxes and income from cash transfers.
Using the center’s definition, the top 1% accounted for 15.8% of income and paid 37.3% of federal individual income taxes in 2020, said Robert McClelland, senior fellow at the Tax Policy Center.
3. The top 1% paid $615.7 billion in federal income taxes, about 40% of the total, in 2018.
That’s the highest percentage since 2001, when it was 33.2%, according to the IRS data. The share bounced around a bit after that but has risen steadily since 2016.
Part of the reason the wealthy are paying a larger slice is because expansions of refundable tax credits and the near doubling of the standard deduction as part of the Republicans’ tax cuts reduced the share paid by those lower on the income scale, York said.
RELATED: How the richest people on Earth avoid paying taxes
The percentage of federal income tax paid by the bottom half of taxpayers fell from 4.9% in 2001 to just below 3% in 2018.
However, just because the wealthy have been paying a larger share of taxes doesn’t mean they are forking over more money to the federal government, McClelland said.
The amount the top 1% paid in taxes in 2017 was roughly the same in terms of dollars. And their average tax rate was 26.8% that year, versus 25.4% in 2018.
By contrast, the tax rate for the bottom 50% was 3.4%, according to the IRS.
Looking over the longer term, the tax rate of the rich has fallen sharply since World War II. It plummeted from about 40% in 1945 to about 25% in 2015 for the top 1%, according to the Tax Policy Center, which used a different measure that includes untaxed capital gains. But the rate across all taxpayers has remained relatively stable over that time.
Here’s how the Democrats want to tax the rich:
The top marginal income tax rate would rise to 39.6%, up from 37%, and would apply to single filers with taxable income greater than $400,000 and married couples earning more than $450,000 annually.
The top capital gains rate would increase to 25%, from 20%, for individuals earning more than $400,000 and couples making more than $450,000. That’s lower than Biden’s proposal, which would have raised it to the top marginal rate for wages and salaries of 39.6% for those earning more than $1 million annually.
In addition, lawmakers would slap a 3% surcharge on individuals earning more than $5 million. This means that their top marginal income tax rate would rise to 42.6%, and it would push their capital gains rate to 28% before the 3.8% net investment income tax is factored in.
And that net investment income tax would be extended to cover business income included on taxpayers’ personal returns, known as pass-through income. Currently, it is only levied on interest, dividends, capital gains and other forms of investment income.
The legislation would also end the higher estate tax exemption enacted under the Republicans’ tax cuts this year, instead of after 2025. The exemption would be $6 million per person in 2022, a sharp decline from this year’s $11.7 million level.
The Democrats are planning to push through the $3.5 trillion budget package via reconciliation so it would not need any Republican support in the Senate.
The UN secretary-general discusses the recent developments in Afghanistan, climate change and the COVID-19 pandemic.
18 Sep 2021
A Taliban fighter stands guard as Afghan women shout slogans during a protest in Kabul [Hoshang Hashimi/AFP]
Taliban replaces ministry for women with ‘guidance’ ministry
A new sign outside the Women’s Affairs Ministry announced it was now the ‘Ministry for Preaching and Guidance’.
18 Sep 2021
People inspect the damage at the Ahmadi family's house in Kabul [Bernat Armangue/AP Photo]
Apology ‘not enough’, say survivors of US drone attack in Kabul
Grieving relatives of Afghan civilian victims demand accountability, as well as financial compensation and relocation.