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Tax Rates For America’s Wealthiest Fell In 2010

Travis Waldron
Think Progress / News Report
Published: Monday 26 November 2012
“The average effective tax rate fell for all income groups above $500,000, continuing a drop that has occurred for years.”
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With debate in Washington focused on the taxes paid by the wealthiest Americans, new data from the Internal Revenue Service shows that the effective tax rates for America’s top earners fell even lower in 2010.

The average effective tax rate fell for all income groups above $500,000, continuing a drop that has occurred for years. For incomes above $10 million, the average rate fell from 22.4 percent in 2009 to 20.7 percent in 2010. The reason for the continual drop is clear: the 2003 high-income Bush tax cuts lowered the rate on investment income, and wealthy Americans are deriving more income from investments than they ever have, the Wall Street Journal reports:

The reason for the drop in average tax rates is no secret: It’s the special 15% top rates for capital gains and dividends that President George W. Bush pushed through. In 2009, taxpayers with incomes exceeding $10 million reported 35.8% of their income as capital gains and dividends. That rose to 48.5% for 2010.

Low capital gains rates have helped the wealthy pay lower and lower tax rates even as their incomes have skyrocketed. And while capital gains income makes up almost half of the incomes of the wealthiest Americans, it accounts for 2.2 percent or less for earners under $200,000. Half of all capital gains income goes to just to the richest 0.1 percent of Americans.

The capital gains rate has been steadily eroded since President Ronald Reagan taxed such income equal to wages in the 1980s, and the result has been rising income inequality. A January 2012 study found that low capital gains rates were the biggest driver of American income inequality, which now rivals the levels seen in countries like Ivory Coast and Pakistan. In 2010, the capital gains preference helped the richest 1 percent capture 93 percent of all income gains.

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ABOUT Travis Waldron

Travis Waldron is a reporter/blogger for at the Center for American Progress Action Fund. Travis grew up in Louisville, Kentucky, and holds a BA in journalism and political science from the University of Kentucky. Before coming to ThinkProgress, he worked as a press aide at the Health Information Center and as a staffer on Kentucky Attorney General Jack Conway’s 2010 Senate campaign. He also interned at National Journal’s Hotline and was a sports writer and political columnist at the Kentucky Kernel, the University of Kentucky’s daily student newspaper.

Low taxes on long-term

Low taxes on long-term capital gains (assets held more than year) have always been defended on the basis that it encourages investment. However, that should be combined with higher taxes on ordinary income and a progressive scale for large capital gains, such as higher rates for gains exceeding $100,000.

Those benefiting from paying

Those benefiting from paying decreased taxes despite enormous earnings should be allowed to keep their money. They also should be exempt from any and all county, state and federal assistance in times of disaster. Climate change and environmental degradation will considerably alter the geographic landscape and the predictability of looming catastrophe in the coming decades. Increased hurricanes and twisters, rising seas affecting prime beach front properties, earthquakes related to fracking, etc. The "official" response to those who insist on gaming the tax system should be unambiguous. "You're on your own."

Tell ya what corporations &

Tell ya what corporations & rich folk - you can keep your Bush tax cuts, just pay taxes on all the undeclared money you've stashed in offshore bank accounts, and pay your fines for tax evasion and we'll be good.

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