The IRS has issued one of its occasional summaries of the tax lives of the 400 taxpayers with the highest adjusted gross income. As usual it shows that they have lower tax rates, which is no surprise - most people only show up on the top 400 list once, when they have a big capital gain, which is taxed at the lower rate. And as usual, the list triggers lamentations of the unfairness of it all.
If the government took away 100% of the income from these 400 folks, it wouldn't improve the lives of the poor a lick. In fact, it would make the lives of the poor harder by destroying the productive ability of those 400 and their capital to hire people and do things.
The real problem isn't the tax structure at the top. It's the hidden tax structure at the bottom:
Chart courtesy Ludwig von Mises Institute
The chart shows that the phase-out of welfare benefits as income rises can lead to implicit tax rates in excess of 100%. Taxing capital gains isn't going to fix this. Arnold Kling has a better ideas:
There are two potential solutions. One solution is to base eligibility for means-tested benefits on total income, including other government benefits programs. Another approach would be to abolish a lot of specific programs and replace them with generic cash assistance.
Either idea will work better than going after the top 400.
Oh, and thanks to Ryan Clutter and Andrew Leonard for our first Salon link. I hope to have more to say on the subject next week.
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
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