Tax the Deca-Millionaires!
Yesterday, NPR's "Tell Me More" had an interesting discussion about Japan and the budget deficit with Wall Street Journal reporter Sudeep Reddy. Readers suggested various ways to close the budget gap, and one suggested that households earning $10 million or more pay a tax rate of 50% (compared to the current 35%). Reddy looked into this, and had this to say:
"If you look at just income alone, there were 13,000 returns with income above $10 million in 2008, the latest year for which we have data. And if you were to add all that income up, you're looking at about $350 billion in taxable income, which generates about $84 billion in taxes, and that's a 24 percent tax rate for people in that bracket."
1. Why does our progressive tax system stop progressing at approximately $380,000 of taxable income? In other words, why does a household that earns $400,000 pay the same tax rate as one that earns $2 million? Or, for that matter, all the various ways (including the new health-care law) to raise taxes on singles making more than $200,000 and married folks making more than $250,000?
2. These folks paid about 24 cents in income taxes for every dollar they made. Not quite as bad as some people would have you believe. This doesn't just apply to the deca-millionaires. There's a difference between your tax bracket and your effective tax rate (dividing the amount of income taxes you pay by the amount you earned). Given that this is tax time, you can do this calculation yourself. You may be surprised.
That said, income taxes are just part of the story. There are property taxes, sales taxes, state and local taxes, gas taxes, cell-phone and cable taxes, etc. Add all that up, and you may be enraged.
I don't know if raising taxes on the deca-millionaires is the answer. (I live in Washington, and know plenty of people who work for either the government or government contractors. And most will tell you that there's fat to be cut.) But I found Reddy's stats interesting.
Robert Brokamp, CFP®, is the senior advisor for the Fool's Rule Your Retirement service.