Are The Rich Actually Taxed At Higher Rate Than Middle Class?

September 20th, 2011

The Huffington Post

By: Stephen Ohlemacher

President Barack Obama makes it sound as if there are millionaires all over America paying taxes at lower rates than their secretaries.

“Middle-class families shouldn’t pay higher taxes than millionaires and billionaires,” Obama said Monday. “That’s pretty straightforward. It’s hard to argue against that.”

The data tell a different story. On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government.

There may be individual millionaires who pay taxes at rates lower than middle-income workers. In 2009, 1,470 households filed tax returns with incomes above $1 million yet paid no federal income tax, according to the Internal Revenue Service. That, however, was less than 1 percent of the nearly 237,000 returns with incomes above $1 million.

In his White House address Monday, Obama called on Congress to increase taxes by $1.5 trillion as part of a 10-year deficit reduction package totaling more than $3 trillion. He proposed that Congress overhaul the tax code and impose what he called the “Buffett rule,” named for billionaire investor Warren Buffett.

The rule says, “People making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay.”

“Warren Buffett’s secretary shouldn’t pay a higher tax rate than Warren Buffett. There is no justification for it,” Obama said. “It is wrong that in the United States of America, a teacher or a nurse or a construction worker who earns $50,000 should pay higher tax rates than somebody pulling in $50 million.”

Buffett wrote in a recent piece for The New York Times that the tax rate he paid last year was lower than that paid by any of the other 20 people in his office.

This year, households making more than $1 million will pay an average of 29.1 percent of their income in federal taxes, including income taxes and payroll taxes, according to the Tax Policy Center, a Washington think tank.

Households making between $50,000 and $75,000 will pay 15 percent of their income in federal taxes.

Lower-income households will pay less. For example, households making between $40,000 and $50,000 will pay an average of 12.5 percent of their income in federal taxes. Households making between $20,000 and $30,000 will pay 5.7 percent.

The latest IRS figures are a few years older – and limited to federal income taxes – but show much the same thing. In 2009, taxpayers who made $1 million or more paid on average 24.4 percent of their income in federal income taxes, according to the IRS.

Those making $100,000 to $125,000 paid on average 9.9 percent in federal income taxes. Those making $50,000 to $60,000 paid an average of 6.3 percent.

Obama’s claim hinges on the fact that, for high-income families and individuals, investment income is often taxed at a lower rate than wages. The top tax rate for dividends and capital gains is 15 percent. The top marginal tax rate for wages is 35 percent, though that is reserved for taxable income above $379,150.

With tax rates that high, why do so many people pay at lower rates? Because the tax code is riddled with more than $1 trillion in deductions, exemptions and credits, and they benefit people at every income level, according to data from the nonpartisan Joint Committee on Taxation, Congress’ official scorekeeper on revenue issues.

The Tax Policy Center estimates that 46 percent of households, mostly low- and medium-income households, will pay no federal income taxes this year. Most, however, will pay other taxes, including Social Security payroll taxes.

“People who are doing quite well and worry about low-income people not paying any taxes bemoan the fact that they get so many tax breaks that they are zeroed out,” said Roberton Williams, a senior fellow at the Tax Policy Center. “People at the bottom of the distribution say, but all of those rich guys are getting bigger tax breaks than we’re getting, which is also the case.”

Treasury Secretary Timothy Geithner was pressed at a White House briefing on the number of millionaires who pay taxes at a lower rate than middle-income families. He demurred, saying that people who make most of their money in wages pay taxes at a higher rate, while those who get most of their income from investments pay at lower rates.

“So it really depends on what is your profession, where’s the source of your income, what’s the specific circumstances you face, and the averages won’t really capture that,” Geithner said.

Click here for the full report from The Huffington Post

100,000 Federal Employees Owe $962 Million in Back Taxes

March 18, 2010

ABC News

By: Devin Dwyer

Working for Uncle Sam comes with some great perks, like job stability, posh benefits packages, and in many cases, average salaries that are higher than what the same job pays in the private sector.

That’s why Republican Rep. Jason Chaffetz, R-Utah, is irked that nearly 100,000 civilian federal employees owe the IRS $962 million in back taxes. He thinks they should pay up or be fired.

Chaffetz has introduced a bill that calls for the federal government to “ferret out” civilian employees who have “seriously delinquent tax debt” and prevent the hiring of other tax delinquents.

More than 3 percent of the 2.8 million federal civilian employees owed the Treasury unpaid federal income taxes in 2008, according to the IRS. If you include retirees and military service members, the numbers go from nearly 100,000 up to 276,000 current or former workers who owe $3 billion in taxes.

“If you get to the point where the government is putting a lien on their property and they’ve exhausted their appeals& the right thing to do is fire them as a federal worker,” said Chaffetz. “If you’re going to take federal tax dollars, you should be paying your federal taxes.”

Currently, only IRS employees can be terminated for non-payment of federal income taxes — a measure Chaffetz wants extended to all federal agencies. The IRS has the lowest level of tax delinquency among its employees than at any other federal agencies, according to the most recent statistics.

But skeptics of Chaffetz’s plan argue firing the delinquents en masse circumvents due process and could only hamper efforts to recoup the cash.

Firing federal employees as soon as a lien is imposed by the IRS would be “prior to any due process hearing,” said Rep. Stephen Lynch, D-Mass., who chairs the House Oversight and Government Reform subcommittee on the federal workforce.

“We have a system that’s in place. For a federal employee, we have the [IRS] garnish their pay at 15 percent — which is higher than for the regular taxpayer,” he said. “We’re getting the money back.”

Wade Morrow, assistant general counsel for the American Federation of Government Employees, the largest federal employees union, said workers should be held to account for back taxes but that Chaffetz’s rule would not accommodate the complexities of individual cases.

“There may be other facts and circumstances that you should consider,” he said, adding that some individuals may have become delinquent due to sickness or divorce complications or due to a mistake in tax filings. Morrow also said the most serious offenders could face termination under existing guidelines if the tax delinquencies interfere with their jobs.

“Getting them to pay back what they owe is preferable to having them all fired, in which case you’re not going to get anything at all,” said Morrow.

Chaffetz: Firing Federal Employee Tax Delinquents Aligns With Obama in Principle
Chaffetz conceded the terminations would probably make it harder for the individuals to pay their tax bills and said employees appealing to the IRS or “making a good faith effort” to repay them should be spared.

But he said a broad purge of tax delinquents is still justified and consistent with a principle laid out by President Obama for contractors employed by the federal government.

Earlier this year, Obama ordered federal agencies to terminate contracts with companies who don’t pay federal taxes.

“It’s simply wrong for companies to take taxpayer dollars and not be taxpayers themselves,” the president said Jan. 20. “We need to insist on the same sense of responsibility in Washington that so many of you strive to uphold in your own lives, in your own families and in your own businesses.”

Democrats in both the House and the Senate have introduced legislation codifying new rules for federal contractors who don’t pay their taxes. Chaffetz is the first and only Republican so far to co-sponsor the House version.

“I think the president’s right in the case [of companies] and now I’d like it expanded to federal workers as well,” he said. “If you’re going to take federal tax dollars, you should be paying your federal taxes.”

The bill is currently under consideration by the House Oversight and Government Reform Committee.

Click here for the full report.