I was originally going to post this as a response in another thread, but since it would bring the discussion pretty far off topic, I decided to start a new post.
skitalets wrote:
Amen, Toubab. Especially the fact that most wealthy people actually do not pay a very high effective tax rate -- this is something Warren Buffet has been on about:
https://www.timesonline.co.uk/tol/money/ ... 996735.ece
I believe he has a $1m bet open that no Fortune 500 CEO pays a higher tax rate than their administrative assistant. So far no one has opened up their finances and taken him up on the offer.
A corollary argument that is irritating is that the US has the highest corporate tax rate in the developed world. Given all the exemptions and loopholes available, this is only true on paper. The actual effective corporate tax rate paid by most corporations is very, very low. My wife is writing her LLM thesis in tax on this very subject.
There has been a lot of noise during the past election about whether the wealthy and/or corporations pay their "fair share" of taxes. I thought I'd share some data on exactly who pays how much in taxes:
Individual Income Tax(Data from 2006 tax year)
Adj. Gross Income...
Effective Rate...
Share of Total Income...
Share of Total Tax Paid>$200,000................21.8%...................33.6%......................53.2%
$100,000-$200,000.....13.1%...................21.5%......................20.4%
$75,000-$100,000.......9.5%....................12.7%......................8.8%
$50,000-$75,000.........8.6%....................14.8%......................9.2%
$40,000-$50,000.........7.8%....................5.6%........................3.2%
$30,000-$40,000.........7.0%....................5.2%........................2.7%
$25,000-$30,000.........6.5%....................2.1%........................1.0%
$20,000-$25,000.........5.7%....................1.8%........................0.7%
$15,000-$20,000.........4.7%....................1.3%........................0.5%
$10,000-$15,000.........3.3%....................1.0%........................0.2%
$5,000-$10,000...........2.6%....................0.3%........................0.1%
<$5,000....................(7.2%)..................(0.1%).......................0.0%
Looking at the effective rates, it does appear that the tax system is indeed progressive, with the effective rate increasing as income increases.
<snark>As for Mr. Buffett, if he believes his tax rate is too low, I would encourage him to visit the following site:
https://www.fms.treas.gov/faq/moretopics_gifts.html </snark>
Source:
https://www.irs.gov/taxstats/index.htmlCorporate TaxesEvery publicly traded company in the U.S. needs to include a footnote in its annual financial statements reconciling their effective tax rate to the U.S. statutory rate of 35%. It's a great way to understand why the effective rate is higher/lower than the statutory rate. Indeed, many companies have a much lower effective rate. This is due, in large part, to their tax planning strategy which attempts to move as much production or value creation into lower tax jurisdictions in order to avoid paying the 35% to the U.S. Here's a small sampling:
Company...............
Current year eff. rate...
Impact of foreign operations...
Adj. Effective RateGoldman Sachs.....................1%..........................(30%)...........................31%
GE...................................6%..........................(27%)...........................33%
ExxonMobil........................44%............................6%.............................38%
Wal-Mart...........................34%............................2%.............................36%
Johnson & Johnson...............24%...........................12%.............................36%
Once you adjust for the impact of these companies' foreign operations, their effective rate is in the 30s.
Source: SEC filings