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Should Rich People Pay More Taxes? Some Facts to Make Things Clear

Should Rich People Pay More Taxes? This hotly debated issue could well become the defining battleground for the 2012 U.S. presidential race. President Obama is in favor, and in the other corner of the ring stands Congress, which has threatened to vehemently oppose any tax increases for the rich and entitled.

The reasons rich people should pay more taxes have been flung about endlessly during just about any major election campaign, with the 2012 campaign having the added push of super rich people such as Bill Gates, and more notably his uncle Warren Buffett. President Obama has coined the term the Buffett rule, which states that Buffett should not be paying a lower income tax rate than his own secretary; subsequently the term class warfare emerged.

The real facts :

  • The richest 1% accounts for 20% of total national income.
  • The rich pay at half the tax rates they did prior to 1981.
  • The 400 richest people in the U.S. derive 80% of their total income from capital gains.
  • The top 10% pay half of all federal taxes, and the Congressional Budget Office reports that they pay 70% of federal income taxes.
  • According to 2009 IRS figures, people making more than $1 Million a year have an effective income tax rate of 24.4%, those making $100,000 to $125,000 paid 9.9%, and those making $50,000 to $60,000 paid 6.3%.

In absolute dollar terms, the rich pay a substantial portion of federal taxes, and have the highest marginal tax rate.

So, Why Rich People Should Pay More Taxes?

The truth of the matter is, the rich have an overall lower tax rate, as capital gains are taxed at the lower rate of 15%, which even President Obama is loath to change.

As the whole world struggles just for survival, the reasons rich people should pay more taxes become more strident, and the theme of soaking the rich becomes even more populist and appealing, as the old argument of trickle down economics has been strongly disputed by study after study.

Of course, how rich people pay more taxes is just as relevant of an issue, as evidenced by the Alternative Minimum Tax, designed to ensnare more rich people into its net, but now is trickling down to the middle class.

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