Minimum tax seems more justified for the very rich

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Texans who were affected by the February freeze don’t have to file their federal tax returns until Tuesday, though you may want to get that envelope in the mail today — or tomorrow at the latest. If you have a refund coming up, congratulations. If you owe Uncle Sam, the check better be in the mail too.

Either way, preparing that tax return is one of the least favorite tasks for most of us. It would be better, or at least less bad, if you knew that the wealthy also pay their fair share on their much larger incomes. But as most of us have learned, the wealthy often pay less tax than we think – or, surprisingly, none at all.

It’s not just a myth either. A recent survey by ProPublica, a nonprofit news organization, found that the 25 richest Americans paid an “effective tax rate” of just 3.4% between 2014 and 2018 – even though their net worth collective has increased by $400 billion during this period. Since the official tax rate for people with incomes over $518,400 is 37%, that means they were paying about 10% of what they would have to pay.

True, no one pays the base rate in every tax bracket. The standard deduction for singles is $12,400 and $24,800 for married couples. So right off the bat this amount is subtracted from your total income.

Actual taxation begins at this point, for any income above this level. The deduction amounts are so high — increased by Trump’s 2017 tax bill — that most average people don’t have enough charitable deductions or other factors to lower their tax bill by itemizing their tax return. However, other deductions come into play and they can save you real money on that tax return.

But you’re highly unlikely to have cut your tax rate to 3.4% – the average amount paid by the 25 richest Americans in the ProPublica survey. The median U.S. household paid 14% in federal taxes, ProPublica reported. So what gives?


Obviously, very wealthy people can pay very smart lawyers and accountants to keep their tax bill as low as possible. And most of their income does not come from a salary, but from other types of remuneration, which are taxed at different rates.

As ProPublica put it, “American billionaires use tax avoidance strategies beyond the reach of ordinary people. Their wealth stems from the skyrocketing value of their assets, such as stocks and property. These gains are not defined by US law as taxable income unless and until the billionaires sell.

The only way around such a situation would be to require the rich and big business to pay a minimum tax. The theory is that no matter how hard their tax preparers might work, they would still have to shell out a reasonable amount of money in taxes each year.

Tax brackets for income received in 2020

37% for income over $518,400 ($622,050 for married couples filing jointly)

35%, for income over $207,350 ($414,700 for married couples filing jointly)

32% for income over $163,300 ($326,600 for married couples filing jointly)

24% for income over $85,525 ($171,050 for married couples filing jointly)

22% for income over $40,125 ($80,250 for married couples filing jointly)

12% for income over $9,875 ($19,750 for married couples filing jointly)

10% for income up to $9,875 ($19,750 for married couples filing jointly)

Source: Tax Department


Senators Elizabeth Warren and Bernie Sanders have promoted a “wealth tax” that would levy a 3% tax on the net worth of the ultra rich. But proposals like this have been put forward before, and they lead nowhere. Republicans in Congress invariably oppose any sort of tax increase, even something like this. Democrats would need a filibuster-proof majority in the Senate and a majority in the House for that to happen — with a Democratic president, of course.

In the same vein, US Treasury Secretary Janet Yellen has just secured historic agreement from G-7 finance ministers for a minimum international corporate tax rate of 15%.

But getting this deal approved by Congress and the rest of the world will be extremely difficult. Former Trump administration economic adviser Kevin Hassett has even stated categorically that it “isn’t going to happen.”

So without a major policy shift, minimum tax rates for the very wealthy or large corporations won’t be on the horizon anytime soon.

It can be argued that the incomes of the mega-rich benefit the economy in other ways, such as creating jobs from everything they buy and produce. And that’s true to some degree; if you have a mansion worth tens of millions of dollars, you will have a hard time dodging the hefty property taxes. The other types of business deductions your accountants work with just don’t apply to something like this.

But even tax bills like that don’t add up to all the other millions sheltered from state or federal taxes. Tax codes are complicated, and savvy accountants can creatively manipulate them, getting a deduction for Jeff Bezos or Elon Musk in ways that weren’t intended.

If they can continue to dodge a minimum tax, that won’t change. In the short term at least, they will continue to pay less instead of more.

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