Taxing The Rich – It Is Not Class Warfare, It Is Math

President Obama wants to increase taxes on the rich because he says it’s not fair for the rich to pay a lower tax rate than the middle class. How the President came to this conclusion is a very confusing. Last time I checked, the US had a progressive income tax system – meaning the more you make, the more the IRS takes.

Of course, the only reason Obama is doing this is to grand stand. He knows that his plan will never pass the house. However, I’m quite surprised that nobody has called out the president on his spin about the rich paying a lower tax rate than the middle class.

US income tax rate start at 10% and goes up to 35% for people earning more than $379,150.

Now, how is someone making $400K or more, and paying 35% income tax, paying a lower rate than a middle-class person making $50K and paying 25% income tax? As far as I can tell, the rich is paying a rate that is 10% higher. I’m pretty sure the rich would love the pay the same rate as the middle class!

President Obama says this is not class warfare. It is math. He should double check his math.


38 thoughts on “Taxing The Rich – It Is Not Class Warfare, It Is Math”

  1. The richest American don’t pay as much in tax because of tax breaks. See this op-ed piece by Warren Buffet: http://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html?_r=2&scp=2&sq=warren%20bufett&st=cse

    1. John Chow says:

      That is not an apple to apple comparison. You can’t compare employment income against investment income. They’re two separate things. And if Obama raise the tax rate on investment income, he effect everyone, not just the rich.

      1. Daniel Larsson says:

        Well I think the entire ‘idea’ behind the ‘tax increase’ (reversion to Reagan era taxes on high income earners) is that if you make $1 million+ from investments OR other income you can afford to pay a little more.

        The trickle down effect obviously is not working..

        1. Whitney says:

          I am confused on this issue honestly. I can’t say what the right path is. I do know this: I’m ready for a new president. LOL.

          1. Whitney says:

            Ok, I thought about it, and – I feel like everyone should have to pay the same amount of taxes. Why discriminate?

      2. John s says:

        John you are right on. If you haven never heard about Peter Schiff, he is a investment and economic genius. http://www.schiffradio.com/b/How-the-Government-Can-Create-Jobs/304730142701739768.html. Prepare for the dollar to start to fall in the next few years as inflation picks up.

  2. I think what Obama is saying is right, it’s not about the math it’s the fact the it’s the right thing to do…just my opinion. #openflamewar

    1. John is rich and afraid of Canada will make a rise as well 🙂

      1. PPC Ian says:

        Haha! That is true, John is very rich from what I’ve heard.

  3. Saw this on TV(RDI economie) to give an idea. It’s in French but you can see the principal of the tax being paid. Like they mentioned, each country has it’s tax system but you get the point..

    Taux marginal maximum d’imposition – 2010

    – Danemark : 62,8 % à partir d’un revenu annuel de 44 064$
    – France : 49,8 % à partir d’un revenu annuel de 100 136$
    – Québec : 48,2 % à partir d’un revenu annuel de 127 021$
    – Ontario : 46,4 % à partir d’un revenu annuel de 127 021$
    – États-Unis : 43,2 % à partir d’un revenu annuel de 380 034$
    – Mexique : 29,6 % à partir d’un revenu annuel de 47 376

    Source : OCDE, Revenu Canada, revenu Québec

    For a US tax payer to pay 43.2%, he/she must earn more than 380 034$. In Quebec, the combine Provincial/Federal taxes is 48,2 % for 127 021$ thus %5 more taxes but starting 253 013$ earlier than the US counter part.

    Then again, some province/country have a lot of social programs thus higher taxes.

  4. Keith says:

    I am liking Herman Cain’s 999 plan! Anyone else? Just my 2 cents, not my 99 cents!

    http://www.hermancain.com/donate999#sc=91211CNNDEBATE999

  5. Chad B says:

    Well, as they say, there are only two things certain in life. That’s death and taxes.

  6. Lela says:

    He should have never renewed the Bush tax credits in the first place. And what is obviously going on is that you have an upside down structure. You have people who make a lot who are taxed very little and I doubt they are going to get taxed properly even now. And then have people who make very little being taxed a lot and a job base that is pouring out into other countries.
    How can you employ others around the world and keep your own people in jobs, You Can’t. Outsourcing needs to be done away with and all companies who are outside this country need to be taxed heavily. Very heavily. This crap started with Regan and gained more fuel and grew with each passing administration and now you have a snow ball the sized of a world.

    1. John s says:

      Lela,

      You are very misguided and I am don’t blame you because our schools teach economic theories but not reality. The reason why we are outsourcing is because the cost of employment here is too high for Americans. Why is it too high? Well, the simple answer is government is too big and there are expensive programs to support. Payroll taxes, potential legal liabilities, and regulations dealing with worker rights makes the cost of hiring a worker very expensive. It is simply supply and demand here. If you have too much supply of workers (unemployment), then you need to decrease the price (the overall cost of hiring someone) to let the market clear. Here is a great article to read by a guy who predicted the .com bust AND the housing bust (search Peter schiff was right on youtube). He testified in front of Congress last tuesday too and here is the written testimony on how the government can create jobs: http://www.schiffradio.com/b/How-the-Government-Can-Create-Jobs/304730142701739768.html

    2. John s says:

      And by way, if you make a law stopping outsourcing you will kill more jobs at home. Outsourcing is just a result of a bloated government that has made the cost of hiring a worker too high. Japan and Germany pay the highest wages in the world and they are huge exporters! In fact, in the 50s and 60s we made the best quality products in the world and paid our workers the highest wages in the world!

  7. Hum! I’m still out of it, ha ha.

  8. Nigel Chua says:

    Hey John

    This bill is one of the most ridiculous and stupid bill, and it’s likely to be more on PR and spin than anything, by calling it the “Warren Bill”, in respect to Warren Buffett. Perhaps it’s because Warren offered to give more in taxes a couple of months/weeks ago, saying

    “Tax us more, we want to do more”

    It’s quite a stupid approach, because as far as we know, having a socialistic + bureaucratic approach to governance and management results in redtape, financial loopholes and loss of income. The government is not very adept to making money, they get deeper and deeper in debt (not my words, it’s the financial statement of US), and by that, giving the US government more tax money, regardless from whichever source, will still result in the same thing: mismanagement.

    A better approach is to instil a sense of philantropy into the rich, capitalistic entrepreneurs and enterprises, giving rise to awareness and corporate social responsibility, where we take care of one another.

    It doesn’t make sense to try to tax the rich more because the rich (I’m referring to the good, clean rich who makes money legally, and ethically) creates jobs for the country, positively influencing economy and growing the bottomline of any country (note: it is small businesses of every country that combined together, helps the country’s economy to float or sink). Because of that, they get the tax breaks they deserve, to create more jobs and finances for the country.

    That’s what tax breaks are for, not to get rich on. Not many can get rich on tax breaks, they’re too small to make one very rich.

    Those who are and will be rewarded are simply those who deliver value, and they will keep getting paid if they keep delivering value, and it will make many people rich, and make many richer still. That’s how it works. If one doesn’t work, one don’t eat.

  9. Candy says:

    Its the same allover the world, the tax payers get taken for a ride and the big corporates manage to evade the tax net with all kinds of deductions. I see taxes as a necessary evil, rather like the surgeon’s knife. At least in the US you have the option of seeing that the tax payer’s dollars are put to good use, not so in many Asian nations

  10. John s says:

    Trickle Down or Supply side economics works. The problem is that the government won’t let it work. The housing market crashed because of government intervention in the housing market. The more we move away from a free market, the worse things will get.

  11. fas says:

    Be happy its U.S. In India the system is worse. Atleast you guys have cheaper tax on consumer durables.

  12. ipad 2 dock says:

    I think Obama will be successful. He is right on taxing the rich.

  13. PPC Ian says:

    The rich do pay mire taxes on an apples to apples basis Shen you look at earned income. Great post John.

    1. PPC Ian says:

      Apologies for typos, on my iPhone. 🙂

  14. I believe that taxing the rich more will just lead rich people investing in other countries, which in turn is bad because more people will lose their jobs.

  15. Kenny says:

    Hey John, You should double check what Obama is proposing. He wants to prevent those that should be in the 35% bracket from using tax credits and loopholes to drop back down to the 10% or 15% bracket.

    1. John Chow says:

      That is not a loophole. It’s just the going tax rate on dividend and capital gain. Employment income are taxed at a higher rate than investment income because investments are purchased with AFTER TAX money. If you make $400K employment income, there is no way to get around the 35%. If you make $400K from dividend, then it’s taxed at 15%, but you’ve already paid income tax on the money used to buy the investment that made you $400K dividend. Governments should not be double taxing.

  16. fazal mayar says:

    I think wordlwide, richers should share their wealth to balance things out and im not talking just about the US with the raise of taxes for the riches 🙂

  17. Joe says:

    Obama is saying the rich pay a lower total rate because they derive most of their income from capital gains which is taxed at a lower rate than wages.

    1. John Chow says:

      The rich are not the only people who makes capital gain. Anyone who buys a stock or investment can make investment income. If they raise the tax rate, it effects everyone. Also, you have to keep in mind that your investments are purchased with AFTER TAX money. In order to get $1,000 to buy that stock, you need to make $1,100 to $1,350 first. This is why tax on investment are lower than tax on income. It’s already been taxed once!

      1. Joe says:

        I was just responding to your original blog post.
        “Now, how is someone making $400K or more, and paying 35% income tax, paying a lower rate than a middle-class person making $50K and paying 25% income tax? As far as I can tell, the rich is paying a rate that is 10% higher. I’m pretty sure the rich would love the pay the same rate as the middle class!

        President Obama says this is not class warfare. It is math. He should double check his math.”

        Someone making 400K or more is not necessarily paying at 35%. It could be a large percentage of that at the lower capital gains rate. Most making in the 50K range from your example may have some capital gains, but most is probably wage income which is taxed at a higher rate.

        I’m not arguing whether or not it is right or wrong, just that Obama wasn’t as incorrect in what he said as you make it out to be. You should know these politicians are very careful with the exact wording they use, at least much of the time!

        1. Joe says:

          And as far as nobody calling him out on it, you must not get Fox News. They spend 24 hours a day attacking everything Obama says or does.

  18. Randy says:

    Hello John — Love your blog, but with this I disagree with you. First do you have a tax problem or a money problem, I say if you are not earning 500K you have a money problem so get to work.
    Secondly, I myself fall into the 33% bracket, yet after mortgage interest, property tax and charitable contribution deductions I actually end up paying 17%. Please look at the whole picture. The tax scale you cite, is the lowest rates since the inception of our income tax system.
    Corporate profits last quarter (in the US) were at a record 1.94 Trillion, and businesses are not creating jobs, so cut their taxes and they will start, not likely.
    Finally, you cannot cut the deficit in Washington with spending cuts alone, the other side is to increase revenue (taxes), yes and job creation creates revenues. But obstructionist politics in Washington creates uncertainty, and business do not like uncertainty!
    Finally, Do you live in Vancouver? I don’t know what your citizenship is, so is he your President??

    Best regards – Randy

    1. John Chow says:

      I believe it’s the right of everyone to set up their affairs to pay as little tax as possible. This is why I have no employment income. I live in both Canada and the US. Obama is not my President because I’m not a US citizen (Green Card). However, I know enough of how the system works to tell you that it doesn’t matter what Obama does to raise taxes on the rich. He will fail. This is a world economy and it’s just too easy to move money around to more tax friendly countries.

    2. CaptiousNut says:

      Randy you wrote,

      “Finally, you cannot cut the deficit in Washington with spending cuts alone, the other side is to increase revenue (taxes)…”

      The problem is THEY’VE NEVER TRIED SPENDING CUTS. And every time they’ve cut income taxes the economy (and tax receipts!) has boomed.

      They need to cut spending, entitlements, AND cut taxes.

  19. Games Dunia says:

    I believe it’s the right of everyone to set up their affairs to pay as little tax as possible.

    Yes John, I agree with you.

  20. Douglas Karr says:

    And this only takes into consideration their “income” and not corporate gains. They are also taxed a percentage of profit from their investments and their companies. Depending on where they live, they are also taxed at a state, county and even city level. Their real estate is taxed, their cars are taxed, and everything they purchase has sales tax.

    Of course, after they die, their inheritance is also taxed. I’m not against taxation, but in the US we’ve quadrupled the budget for the federal government and poverty has risen, the wealth gap has increased, and minority poverty has drastically increased. The only redistribution of wealth that is occurring is from the US citizen to the US government.

  21. Taxing the rich is a good idea based on the simple fact that the rich have access to a lot more than everyone else – access to more credit, education, access to exclusivity, better service and a better living than anyone else.

    The Math part of it is a politician’s marketing campaign; if people hear it enough they will believe it (as marketers we all know how little due diligence people actually do – if I say Google has 15 Billion users on a monthly basis, most people won’t even notice that that number is far exceeding of the world’s population).

    Both sides lie their asses off. I don’t think people should be punished because they are not educated in ways to make more money…

    … Not everybody has the same motivations; most of the “nouveaux-riche” say, I’ve had to work damn hard to get where I am & it’s unfair that I get penalized for making an honest living etc etc. So you’re justifying that your all-nighters at the university library equals the suffering of people who didn’t even have the opportunity to finish High School? REALLLLY?

    The truth is, while some drive their Benzes, other people are still jumping the turnstile at the subway station. While some celebrate their achievements by drinking champagne some people make life decisions revolving on whether they should cut expenses on food or clothing to make it til the end of the month…

    …Those arguments are usually made and fought for by the super educated, and it’s a damn shame that people forget how much less the other part of the population has – that’s why the voiceless are becoming vocal at the Occupy Wall Street rallies… Too many educated people are falling into a larger and widening lower class…

    … Instead of complaining about taxes, I think the rich should definitely not get tax breaks – that’s just my opinion.

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