World Economy

Party Over for US Superrich?

Party Over for US Superrich?Party Over for US Superrich?

For 20 years, the effective tax rates for those at the very top of the income ladder generally dropped. Then, in 2013, after a pair of unusual tax increases negotiated by the (President Barak) Obama White House went into effect, taxes went up on this group.

According to data released Wednesday by the Internal Revenue Service, the average rate for federal income taxes paid by the country’s top 400 income earners rose from 16.7% in 2012 to 22.9% in 2013, almost exactly where they stood in the early 2000s, though well below the level of the early 1990s. By any measure, that’s a victory for the cause of tax justice, analysts said, SFGate reported.

But the recent rate increases, many experts also noted, still do little to overcome the broader issue of a separate, cushier tax system for the ultrawealthy.

“The 2013 increase in the capital gains rate was a significant move towards greater tax fairness,” said Jared Bernstein, who was the top economic adviser to Vice President Joe Biden during President Obama’s first term. “But when you consider the breadth of the tax avoidance industry, much of which is about sheltering income from exposure to any tax liability at all, it’s just a drop in the bucket.”

 Ultrawealthy Benefit

Even with the higher tax rates in 2013, the 400 highest-earning taxpayers, who took home an average of $265 million that year, paid a significantly lower share of their reported income in taxes than those just below them.

For example, the top 1% of earners—whose average income was $1.24 million—paid roughly 27% of their income to the IRS.

Moreover, when payroll taxes are taken into account, many people with much lower incomes, in the range of $100,000 to $150,000, pay effective tax rates that are similar to or even higher than those imposed on the rich.

Essentially, the rich have benefited from two crucial developments over the past few decades: The first was a declining tax rate on investment income, which fell in the late 1990s under pressure from a Republican Congress after President Bill Clinton raised income tax rates in 1993. It fell even further under President George W. Bush in the early 2000s, who cut both ordinary income rates and investment rates. (Both went back up with the 2013 tax increase, though the rate on investment income remains lower than in the early 1990s.)

Because the ultrawealthy derive an outsize portion of their income from investments, these tax cuts disproportionately benefited them.