If you've just finished filing your taxes and you owe the IRS, or you're planning to wait until the absolute last minute because you
suspect you owe the IRS, you probably don't want to hear this: The average federal income tax rate for all Americans
has gone down in the past 20 years. Overall, it's dropped from 9.9 percent to 9.3 percent since 1992. But among the 400 people with the highest adjusted gross income in the country, averaging $345 million a year, the average rate—the
effective rate—has dropped from 26 percent to 17 percent. This disparity is both symptom and disease, a marker for the ever-increasing inequality of income (and-wealth) in the United States, not just between the top 400 and the rest of us, but between the top 10 percent and the bottom 90 percent,
and especially the top 1 percent.
Since the top marginal tax rate—thanks to cuts that started a half-century ago—is now 35 percent instead of the 91 percent it was in 1962, why does everybody pay so much less than that, and how are the rich, especially the ultra-rich, paying so much less than when George H.W. Bush was President?
Part of the reason, of course, is the marginal nature of that 35 percent, the rate first set in Ronald Reagan's administration and later upped a few points before the second Bush administration returned it to that level with the Economic Growth and Tax Relief Reconciliation Act of 2001. The rate is only 35 percent on additional income above a certain level. Nobody pays that rate on their entire income. But the main reason for those lower levels derives from how different kinds of income are taxed, from tax credits and from deductions.
And the reason for that arrangement, which benefits those with the highest incomes most? Because they want it that way.
The Republican plan—Paul Ryan's Roadmap for the Future Prosperity of the Ruling Class—contains the next round of tax cuts and would chop the top marginal rate to 25 percent, the same as in 1925. The implication made by that plan's inventor is that eliminating the deductions and tax credits will not reduce the effective tax rate for those with top incomes below the 17 percent they're now paying. In fact, the implication is that they will actually pay 25 percent, a good deal more than they are paying now. Which is baloney.
It's not deductions or tax credits that are the major reasons the effective rate gets lowered for the rich. It's the way certain kinds of income are taxed that gives them the edge over rank-and-file Americans when their accountants figure what they owe. Ryan's plan would guarantee an even better deal for them because dividends, capital gains and interest would miraculously not be considered income as far as the IRS is concerned. That's where the rich get a big chunk of their money and where other people get comparatively little of theirs.
Meanwhile, in what Ryan, Republicans and some Democrats dare to call reform, items like the Earned Income Tax Credit, which is targeted to help low-income people work their way out of poverty, would be eliminated.
The whole scheme is just a new round of Thimblerig. And the con artists, as usual, are concealing their play in this shell game by distracting everyone with tales of how simple and straightforward everything will be if only their plan gets approved.