They don't pay anywhere close to that, there are tons of tricks to avoid paying that % on gains and the more money you have the more leeway for loopholes.
Very relevant in startup ecosystem as well (look up exchange funds, opportunity zones etc.)
They don't pay anywhere close to that, there are tons of tricks to avoid paying that % on gains and the more money you have the more leeway for loopholes.
Very relevant in startup ecosystem as well (look up exchange funds, opportunity zones etc.)
40% of Federal income tax revenue comes from the top 1%.
Imagine how much federal revenue would increase if that 1% paid the same effective rate as say a typical plumber, rather than the <10% they currently pay. That might actually put a dent in the trillions of dollars this congress is about to add to the national debt.
shrug
I hear that sentiment a lot, but it doesn't seem right to me. My salary is pretty close to the median plumber's income, and my family's effective tax rate last year came in at... 1.6%. And that's with all retirement account contributions going toward Roth accounts. If we'd chosen to contribute to traditional IRA/401k accounts instead, the EITC and child tax credit would easily turn our tax bill negative.
A quick search tells me the median plumber salary is ~$60k. Your telling me your entire tax burden is ~1k? I find that hard to believe, and if true is pretty darn atypical. That's closer to what I was paying when I was making ~10/hr.
Yes. We had $50k of taxable W2 income ($63k including pre-tax insurance premiums and HSA contributions), $13k of taxable family leave benefits, $4k of interest/dividends (mostly qualified dividends, taxed at 0%), and $9k of long-term capital gains (taxed at 0%), making our pre-tax gross income about $89k. Only $66k of that is subject to taxes; the standard deduction brings that down to $37k, on which the tax is $4k. With a $2,000 child tax credit, $400 saver's credit, and $200 foreign tax credit, our tax liability is reduced to $1400, which is 1.6% of $89k.
"That might actually put a dent in the trillions of dollars this congress is about to add to the national debt."
It might also result in even more spending. I don't think that there is any "natural ceiling" when it comes to willingness of politicians to spend other people's money. The only ceiling is external - how much will the system bear.
> rather than the <10% they currently pay
I suspect you're using a different definition of "income" than the IRS. What is it?
The amount they report on their tax returns.
There's no case where that's true.
https://www.pewresearch.org/short-reads/2023/04/18/who-pays-...
For one thing, many plumbers do make it to the 1%: Trades are a profitable line of work for the industrious.
But the median 1%’er is paying 3-4X the effective rate of the overall median earner.
So if they're earning 50x as much, why are they only paying 3-4x the tax?
>> is paying 3-4X the effective rate > why are they only paying 3-4x the tax?
You have conflated the tax rate with the tax amount.
[flagged]
They did! Then someone decided that was waste and installed incompetent people over it.
What percent of all income do they make?
Edit: it's an honest question. Maybe the top 1% paying 40% of all income taxes is too much tax. Maybe it's not enough. Without knowing how much of all the income they make it's a meaningless number.
According to the Tax Foundation[1], for tax year 2021, the top 1% of U.S. earners—those with an adjusted gross income (AGI) of $682,577 or more—accounted for 26.3% of total AGI and paid 45.8% of all federal income taxes.
My personal opinion is that income tax should be more progressive, but I know that plenty of smart people disagree on that.
[1] https://taxfoundation.org/data/all/federal/latest-federal-in...
Your source leans right-center, so probably good reason to suspect their reported top 1% AGI is low and their reported federal income tax estimate is high.
https://mediabiasfactcheck.com/tax-foundation/
It’s IRS data. You can download it from the IRS website and replicate the analysis and prove them wrong if you’d like.
https://fee.org/articles/5-reasons-to-avoid-ad-hominem-argum...
1. Does not follow. Just because you don't like someone's politics doesn't mean they're dishonest.
2. Your own link contradicts you. It says explicitly that that site hasn't failed any of their fact checks and doesn't use loaded words that they say are typical of that category. It says the categorization is because the site promotes libertarian policies.
There are a lot more taxes than the federal income tax. It happens to be one of the most progressive taxes. Anyone focusing on that and ignoring all the others is trying to scam you.
This is true for ultra high net worth individuals. They can do schemes like borrowing against equities and using the tax-free cash for expenses or purchasing other assets.
It is also true for many “normal” one percenters. For example there is a service for incorporated anesthesiologists where you tell them where you plan to go on vacation and what dates, and they create a bullshit anesthesiology conference, including the brochure and other artifacts, that meet the letter of the law IRS definitions for a valid business expense. None of this stuff ever hits AGI.
A simpler example: social security taxes hit a cap at a bit under $200,000/year. Somebody working fast food at minimum wage is paying 6.2% on every dollar they earn, while with my fancy tech job I’m paying a substantially lower percentage.
The social security "tax" should really be conceptualized as an investment, not a tax. The typical fast food worker has probably not passed the first bend point in the Social Security PIA formula, meaning that social security is giving them 90 cents on the dollar*. You, with your fancy tech job, are likely well past the second bend point: social security is only giving you 15 cents on the dollar* (and nothing, obviously, for earnings beyond the payroll tax ceiling).
It's a progressive system overall - but it wasn't designed for the purpose of wealth redistribution, hence the payroll tax ceiling.
* More precisely, their monthly benefit at full retirement age increases by 90 cents for each additional dollar of pre-retirement average monthly earnings, whereas yours only increases by 15 cents.
That's wild. I searched, though, and this is the closest I found: https://www.cerebraltaxadvisors.com/blog/vacation-business-t.... Is there a link you could share for the actual fake conference approach?
> This is true for ultra high net worth individuals.
Anyone can borrow money against their stocks, house, or credit card. It's tax-free as well.
> They can do schemes like borrowing against equities and using the tax-free cash for expenses or purchasing other assets.
Um, borrowing money is not "income". You have to pay it back, with interest.
If the asset appreciates faster than the interest rate there's never a need to sell. If the interest rate is lower than the capital gains tax rate, paying the interest is cheaper than paying taxes.
UHNW individuals can borrow until they die. Their assets pass to their heirs with a stepped up cost basis. The heirs can liquidate whatever's needed to pay off the loan and incur no tax.
Normal people can't do this. If I die owing money, my creditors will take it out of my estate before it passes to my heirs. UHNW estates can be structured differently and creditors can accommodate different payment terms (get paid second) because they know the money's there, and it saves taxes.
You can also read: https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26...
I might have gotten some things wrong. Or maybe the poster has.
> Their assets pass to their heirs with a stepped up cost basis
LOL, the stepped up basis gets hit with the inheritance tax.
> The heirs can liquidate whatever's needed to pay off the loan and incur no tax.
The loan and the interest payments and dont forget the inheritance tax.
> Normal people can't do this.
Yes, they can borrow money, die, the inheritors pay off the loan with the stocks, and then pay estate tax.
> LOL,
I assumed you asked a question to learn something. If you're not interested in learning, please continue believing that everyone gets the same tax system. Otherwise keep reading.
> the stepped up basis gets hit with the inheritance tax.
There's no federal inheritance tax. Only some states have it. You're thinking of the estate tax.
If you read the link I posted: https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26...
it has a fairly detailed explanation of how it's a completely different ballgame above a net worth of $300m. Grantor trusts allow sidestepping estate tax and...
> The loan and the interest payments
"The loan" otherwise known as "income" because that's what it really was. Income that would normally have been derived by selling assets. Obviously it has to be paid back. No one said it's free money. Only that it's (largely) tax-free money.
The interest payments are lower than the income tax would've been on the same amount of income.
> and dont forget the inheritance tax.
You mean estate tax. Explained above.
> Yes, they can borrow money, die, the inheritors pay off the loan with the stocks, and then pay estate tax.
Not in the same way, and not nearly as effectively.
If there are specific inaccuracies with https://www.reddit.com/r/BuyBorrowDieExplained/comments/1f26... I'm open to learning.
> There's no federal inheritance tax. Only some states have it. You're thinking of the estate tax.
They're the same as far as this discussion is concerned, as the amount that the beneficiary gets is (roughly) the same.
> "The loan" otherwise known as "income" because that's what it really was
Borrowed money is not "income" in any sense of the word. When I was on summer vacation, I decided to take a class in accounting. One of the most productive uses of my time. I recommend it. P.S. if your business tries to classify borrowed money as "income", that's called fraud.
> If you read the link I posted
I rely on my CPA for tax advice, not the internet, nor do I care much for misusing accounting terms. I've read too many articles that confuse income with revenue, wealth with income, and so on.
> They're the same as far as this discussion is concerned, as the amount that the beneficiary gets is (roughly) the same.
The estate's value is reduced by what it owes.
> if your business tries to classify borrowed money as "income"
sigh C'mon man, engage in good faith here. Stop saying things I didn't say.
If you can borrow cash against assets, don't have to pay principle until you die, and only pay low interest payments then it's functionally the same as selling those assets at a low tax rate. That's the principle.
And if you can use trusts to avoid estate taxes then there are no (or very low) taxes due ever.
> I rely on my CPA for tax advice
Ok ask your CPA what they know about using trusts to avoid estate taxes. Maybe it's BS but maybe it's true. Without some curiosity, how will you ever know?
> not the internet
More reputable sources than Reddit indicate it may be possible to use trusts to greatly reduce or eliminate estate tax:
https://privatebank.jpmorgan.com/nam/en/insights/wealth-plan...
https://www.investopedia.com/terms/g/grat.asp
https://www.fidelity.com/learning-center/personal-finance/wh...
I don't think anyone is arguing that a loan is income in a legal sense. I am going to generously assume you misunderstood.
20%. https://ourworldindata.org/grapher/income-share-top-1-before...
The top 1% of people make 20.7% of the country's income. Given progressive tax rates, they should be paying a lot more than 40% of Federal income tax revenue, but rates don't scale enough, and aren't lax enough on other classes.
Can you explain your reasoning behind "they should be paying a lot more"? I kept hearing that they didn't pay their "fair share" when in fact it appears they pay double. It just seems like whatever they actually pay, measured in dollars or as a percentage, will always be widely regarded as not enough.
There are a couple of key phrases in politics that get used because there is no actual justification. "Fair" is one of them. It is impossible to achieve fairness in the tax system under any circumstances, it is always taking from someone who - from the fact that it isn't voluntary - we can assume quite likely disagrees with how the money is about to be used. Taxes are fundamentally arbitrary.
So in practice, if "fair" is used in politics the appropriate reading is often as a euphemism for "I think we have the numbers to push this interpretation of the world on people; it'll be good for us".
Could you help me understand why an individual with one billion, needs two? At what point would you accept that someone has more money than they'd reasonably need? And if you just thought of a maximum amount, then, wouldn't the acceptable tax rate over that amount, be 100%?
> Could you help me understand why an individual with one billion, needs two?
Sure. https://news.ycombinator.com/item?id=43687828
Not sure any of these companies have really appreciably made the lives of people better. Sure seem to have funnelled more money to Elon though.
No money was "funneled" to Elon. He created it.
As for making lives better, Starlink was provided free to disaster victims in N Carolina and the LA fires. Something the government failed at. Enabled by cheap reusable SpaceX rockets, another thing the government failed at. Starlink is very popular, so it must be making peoples' lives better.
> No money was "funneled" to Elon. He created it.
Money was funnelled to Elon, he has a knack for getting government contracts. My memory is Tesla was powered by many grants for whoever was willing to work on electrification of society. The issue with that is that people want to put more money under the control of the government, despite it being the entity that funnelled money to Elon. I don't really understand that perspective, it seems a bit crazy - it'll end up with Elon getting more and more power and wealth. If we assume de-powering and de-wealthing Elon is a good, why push more money into the system that is wealthing and powering him? One theme in Elon's companies is they are positioned to hoover up money the US government is wasting and make sure it ends up in Elon's pockets.
Less government spending is more likely to hurt Elon than help him.
Government contracts where they buy something is not "funneling" money any more than you "funnel" money to Safeway when you buy tomatoes there. And if Musk had failed to deliver working rockets, NASA wouldn't have paid a dime. Musk bet his entire fortune on it.
Musk also sold those rockets to NASA for 10% of what NASA would otherwise have to pay.
> One theme in Elon's companies is they are positioned to hoover up money the US government is wasting and make sure it ends up in Elon's pockets.
Tell us how that works.
> Less government spending is more likely to hurt Elon than help him.
Are you suggesting that Musk is doing what's right for the country rather than what's right for his fortune?
> No money was "funneled" to Elon. He created it.
No he didn't.
> Starlink is very popular, so it must be making peoples' lives better.
So is meth.
So every enterprise becomes state owned? Ilya Sutkever's new company is already worth 32B so 31/32 of it should be owned by the government in your world? Who makes the decisions for it?
I am alarmed by how quickly Americans leap from the suggestion that we tax the super-wealthy more, to this idea of full communism.
Assume you think the government is in a better position to spend that billion than the billionaire is to figure out what to buy or invest their money in?
I know he's out of favor with a lot of people, but would Elon have created SpaceX or The Boring Co or Neuralink, or helped start OpenAI if he hadn't had the spare billions to do so?
I'd much rather have multi-billionaires investing in the economy, and in the future, than giving additional money to the government.
So you'd rather have someone unelected with that money. Don't y'all live in a democracy?
We live in a Constitutional republic, with a Bill of Rights and the right to own property.
So, no?
Correct. Look up "Constitutional republic".
https://www.uscis.gov/sites/default/files/document/lesson-pl...
> when in fact it appears they pay double
They very obviously don't make only twice as much money as the bottom 80%, so how is that equal in the slightest?
You've mis-read the comment. This logic is not strictly related but it might help you understand what he was saying:
There are ~300 million people in the US who are not billionaires. If they earn, on average, $4 each that balances out a billionaire by income [0]. Since there are <1,000 US billionaires, the average american income would need to drop back to something around the $4,000 range for billionaires to be out-earning them.
This is why taxes tend to land heavily on the middle class, the billionaires don't control most of the money. If politicians want access to money, the biggest pot isn't the billionaires.
[0] And billionaires don't generally make billions in income because it is a wealth measure.
The top 1% aren't the billionaires. It's also not most of the millionaires. It's people earning a tiny bit less than 700k a year.
The suggestion is simply that the top 0.1% pay more - as they will be little affected by it.
It's important to distinguish between wealth and income. Like, I would say that a lot of HN readers are in the top decile of income in whatever country they live in, but far, far fewer are in the top decile of wealth.
Personally, I think that we should tax wealth more in general, and probably make the income tax a bit more progressive (I currently pay 52% which sucks, but if I had to pay a few pp more to get rid of homelessness and poverty in my country then I'd be ok with it).
> as they will be little affected by it
Everything you tax away from wealthy people is removed from their investments.
For example, if all of Musk's income above $1m were taxed away, the following companies would never have existed:
1. Tesla
2. SpaceX
3. Starlink
4. Neuralink
You didn't have to sweeten the pot, I was already on board
Its still less than the fines most of those companies have incurred in the space of a year.
Do you think they were arguing for taxing away all wealth over $1 million?
If they were taxed $1, that's $1 taken away from investments.
Ok, but how does that prevent the existence of what you mentioned?
Do you think they weren't? What about that logic doesn't apply to millionaires?
Or to put it another way, if I make the same claim about millionaires; how do you expect to argue that they will be greatly affected by being taxed more? A 1% tax increase on someone's gross income is never going to "greatly" affect them unless, but if it happens 100 times they will be pennyless.
If you take money away from someone, they will have less money and do less because they have less resources.
I'm not sure what the disagreement is? None of the stuff you said is wrong, but I don't see how it is a response to my comment. Nor do I see how it is particularly relevant in a conversation where I assume the idea is a different progressive taxation rate.
There isn't a disagreement, it is a question (technically, several questions). The hint is in the "?". Your 1 sentence comment isn't long enough to respond to directly without more information, even if I wanted to.
I am going to abstract from the hard 1 million number which is obviously low in 2025, and just base my arguments on maybe a few million as a reasonable limit. Make it ten or twenty if that fits your mental model better. You have no way of knowing that those companies would never have existed. They could very well have existed, just no billionaire would have been the majority owner. The money is not removed from their investments, but they are required to divest them to other owners. Funding mechanisms for the companies now self-funded by billionaires would be quite different if the ultra-wealthy were never allowed to exist. It would require more cooperation, but it would not therefore be impossible.
If somebody cares about progress and is highly motivated, they should remain highly motivated to create incredible products and services, whether that buys them unchecked power or not. If some people would be less motivated and do less than they do now, it would be a lesser evil that creating oligarchs thirsty to dominate whenever they get the chance. As long as people can live a good and comfortable life, they do not have rights to more than that.
People who argue against progressive taxes tend to ignore the fact that modern capitalism is basically a game, one where the rules greatly favor the richest, who have virtually unlimited leverage compared to the average person. They make money exponentially more easily than others. It is absolutely right to correct this game through appropriate progressive taxes. Every once in a while an adult needs to step in to keep the game fun for everybody, and not just let the best player dominate others and make everybody else miserable. Maybe if we did this, the price gouging and constant turning of the screws would give way to a society where fair trade was the default cultural and economic norm.
Certainly hoarding more wealth than Smaug is a crime of grave injustice against humanity. For the mind completely sold to capitalism, this is impossible to understand. But people come before wealth and power.
> If somebody cares about progress and is highly motivated, they should remain highly motivated to create incredible products and services, whether that buys them unchecked power or not
If you tax their money away, they have that much less capital to invest.
> It is absolutely right to correct this game through appropriate progressive taxes.
Only if you don't like electric cars, cheap space rockets, cheap global communications, and enabling people with spinal injuries to need a lot less help.
> Certainly hoarding more wealth than Smaug is a crime of grave injustice against humanity. For the mind completely sold to capitalism, this is impossible to understand. But people come before wealth and power.
Nobody hoards wealth. They invest it. Nobody has a Smaug hoard. There are no Scrooge McDuck cash vaults.
I suggest you check out what happened under communism in the Soviet Union, China, Cambodia, Cuba, etc., under communism where people came before wealth and power. Your ideas sound good in a textbook and in the classroom, but they just don't work in the real world.
How come the system rewards someone like Musk with so much but doesn't do the same for people like Norman Borlaug (green revolution), Frederick Banting (insulin), Karl Landsteiner (ABO blood groups) or Katalin Karikó (mRNA vaccines)?
What sort of things can our society do to ensure that the people who dedicate their lives to eliminating the suffering of so many are compensated for what I'm sure we can agree are absolutely amazing accomplishments?
> Nobody hoards wealth. They invest it. Nobody has a Smaug hoard. There are no Scrooge McDuck cash vaults.
There are, unfortunately. [0] Though Putin's gold palace did have to be stripped for fungal problems, later.
Musk does go around with a large amount of debt, such as the 13bil he currently owes. So he's less likely to have a prepper vault. That does not mean that human greed doesn't turn to cartoons for inspiration, at times.
[0] https://youtube.com/watch?v=ipAnwilMncI
Musk's companies are hype stocks. Today's many successful tech companies run because of the commodification of x86 hardware, allowing them to build massive data centers, run cheap ad platforms, provide things like YouTube, etc, for free. All of this was because of Linux, which Linus Torvalds created. Before Linux and commodity x86 made it reliable and useful, every company had to pay Sun/IBM exorbitant amounts. In no conceivable universe has Musk created more value than Linus. Yet, Linus is not a billionaire.
Most businesses are funded by taxpayers, either directly or indirectly. Elon Musk is a billionaire because of DOE funding, or there would have been no Tesla today.
By January 2009, Tesla had raised $187 million and delivered 147 cars. Musk had contributed $70 million of his money to the company.
In June 2009, Tesla was approved to receive $465 million in interest-bearing loans from the United States Department of Energy.
https://en.wikipedia.org/wiki/Tesla,_Inc.
What is the right percentage for the 1% to pay? State a percent.
I keep here this “the rich should pay more”, but rarely do I hear a number.
Whatever it takes to restore 1960s level of inequity.
By whatever measure works, eg old school gini coefficient or something more modern.
You're right though: food fights over decimal points and gaming the rules nicely obfuscates any constructive debate about what kind of society we want.
Your answer begs the question - why is the 1960’s the right target?
And if the Gini coefficient is calculated pre-tax and pre-benefit distribution, it’s not going to change with high taxes and high redistribution (and yes you mentioned it may not be the right measure).
And if the Gini coefficient is calculated based on income data from the US, do we know if the better Gini from 1960’s wasn’t just due to income not being reported to the IRS?
> why is the 1960’s the right target?
Realpolitik. Proper Nordic levels of (lesser) inequity is not likely in the USA. But selling the nostalgia of our '60s era prosperity might fly.
> if the Gini coefficient is calculated pre-tax
Firstly, then pick a different different metric. Gini coefficient is merely the most familiar.
Secondly, you asked about proper income tax rate. In my pithy reply, I implied outcomes are more important than implementation details, but slap fights (like this one) about those details are used to distract. (I think the kids today call that "bike shedding".)
Also, I did not explicitly state that measures of wealth distribution is the central issue. I regret the omission.
--
While I have your attention: How do you think our tax regime should be structured?
Feel free to link to any prior explanations (posts) I may have missed, so you don't have to repeat yourself.
Tax every dollar over $999,000,000 at 100%.
50% tax.
For perspective: UK tax rate bands are 40% between £50k-£125k, 45% above that. So 50% tax for the 1% isn't wild at all in absolute (although it's a big departure from the american approach to taxes, of course)
https://nymag.com/intelligencer/article/fact-check-richest-1...
That seems excessive.
Corporations are persons, right? Why is their tax rate just half that of real people?
Why aren't all persons taxed equally?
The top 1% own 39% of everything in the U.S. You are not in the top 1%. Why are you complaining again?
The city claims to own my house, as they charge me rent every year, and have a long list of things I'm not allowed to do with it.
That rent went up over 10% last year. For contrast, the rent control people want to cap rent increases to 7%.
My heart bleeds for you.
I appreciate your concern.
If they don't wanna pay so much in taxes, they should stop having so much money. Taxes function to raise revenue and thus have to go where the money is.
This conversation is about billionaires, not the top 1%.
There are no loopholes for investment gains. If you are talking about offsetting losses and delaying gains, those options would likely be available to endowment funds.