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Dissecting the Tax Preferences the Rich Receive

America’s deep pockets, a new report shows, are saving big bucks from a wide assortment of federal income tax breaks. They’re saving even more from the absence of a wealth tax.
The latest Congressional Budget Office figures reveal a tax code riddled with discounts for America's rich.

The latest Congressional Budget Office figures reveal a tax code riddled with discounts for America’s rich.

A hundred years ago, in 1913, Congress wrote into law a federal income tax. Lawmakers have been dotting the tax code, almost ever since, with an assortment of “never-minds” that hand most of us, at one time or another, discounts at tax time.

These discounts can come in handy. If you buy a home, you get to deduct off your taxes the mortgage interest you pay. If you’re raising a family, you get to claim tax credit for your children. If you retire, you can exclude Social Security income from taxes.

And if you make a killing trading on the stock market, you only have to pay taxes on your windfall at half the normal tax rate.

How much do all these deductions, credits, exclusions, and preferential tax rates cost the federal treasury? Representative Chris Van Hollen, a lawmaker from Maryland, wanted to know. He asked the nonpartisan Congressional Budget Office to calculate exactly how much “tax expenditures” — the wonky label in Washington for tax never-minds — were actually costing.

Van Hollen also asked the CBO to calculate which American taxpayers, by income level, were benefiting the most from these tax expenditures.

Last week, the CBO reported back — with some big numbers: The top 10 special tax breaks in the federal tax code will cost the federal government $900 billion in 2013 and $12 trillion over the next decade.

The top 10 special tax breaks in the federal tax code will cost the federal government $12 trillion over the next decade.

And most of the benefits from all these trillions in tax savings, the CBO found, are cascading down to America’s most comfortable.

If tax expenditures operated on a totally neutral basis, America’s most affluent 1 percent would be receiving just 1 percent of the taxpayer savings that tax expenditures generate. In fact, the CBO calculates, the top 1 percent of U.S. taxpayers are receiving 17 percent of tax expenditure benefits.

Project these numbers over a decade, and the tax savings for America’s most affluent really start to add up. Over the next ten years, if current law remains in effect, tax expenditures will pour $3.6 trillion into the pockets of America’s top 5 percent of income earners — and $1.9 trillion into the pockets of America’s top 1 percent, households that make over $450,000.

But the enormity of these trillions only hints at how light a tax burden rests on our rich, suggests another new study released last week, the annual global wealth survey from researchers at the Boston Consulting Group.

Just under 5 percent of America’s households, says this new study, now hold at least $1 million each in financial wealth, assets like stocks and other securities, the dollars in savings and checking accounts, and the like.

About 5 percent of America’s households hold at least $1 million in financial wealth.

In 2012, the total net worth of these top 5 percent households pumped up America’s total financial wealth to $39 trillion, a total a trillion dollars higher than the combined financial wealth of Japan, China, and Germany, the world’s next three richest nations.

America’s wealthiest households pay no annual federal taxes on any of these trillions. Why? The United States has no annual federal tax on financial wealth.

We do, on the other hand, have a tax on property wealth. This property tax — a state and local government levy — essentially amounts to a tax on America’s middle class. That’s because residential property makes up most of American middle class wealth — 66 percent, on average, the latest Fed figures show.

For households in America’s richest 1 percent, by contrast, home sweet home accounts for only 9.4 percent of household net worth.

In other words, in America today, we tax the wealth of the middle class on an annual basis. We essentially give the wealth of the wealthy a free pass.

Other nations do tax the wealth of the rich. One of these nations, France, has just upped the rates on its “wealth tax.” French households with over $21.5 million in wealth are now paying this wealth tax at nearly a 2 percent annual rate.

Other nations, unlike the United States, do tax the wealth of the rich on an annual basis.

How much would an annual 2 percent wealth tax raise from America’s millionaire households? Recent research from the Deloitte Center for Financial Services can help us here. Deloitte researchers have calculated that American millionaire households in 2011 held $38.6 trillion in total, not just financial, net worth.

In 2020, Deloitte estimates, U.S. households worth at least $1 million will hold $87.1 trillion in wealth, over five times the size of that year’s entire estimated federal debt. A 2 percent annual tax on this $87.1 trillion would raise over $1.7 trillion. Some perspective: In 2020, the Congressional Budget Office estimates, the personal income tax bill for all Americans will total $2.16 trillion.

Sign-up for Too MuchThe new CBO numbers on tax expenditures, says Representative Chris Van Hollen from Maryland, show clearly that current federal income tax deductions, credits, exclusions, and preferences skew “disproportionately to the highest 1 percent of income earners.”

America’s absence of any national annual tax on the wealth of our wealthy skews this lopsided, top-tilting tax picture a good bit more.

  • ItsCool2BlameObama4YourProblem

    While I don’t think taxing anyone simply because they’re wealthy is necessarily a good idea, this shows just how disproportionate things have become. I find it very frustrating how people can’t understand that acknowledging the inequality and the problems it creates doesn’t mean you have to believe in redistribution. I can’t seem to get any conservatives to see how this current situation where the top 5% are essentially stockpiling the wealth, is unhealthy for the economy. I don’t know how, but that money needs to get put back into the cycle.

    • Bramlet Abercrombie

      The other 95% should just kill themselves, then the wealth will be spread more evenly.

      • Gawd

        Get the fuck out of here socialist motherfucker, if communism worked so well you wouldn’t have a car, a cellphone, and a cable TV with a couple hundred channels, not to speak of warm water and healthy food that African children can only dream about. Oil corporations are what we should aim at destroying, not entrepreneurs. If someone has something of value, I’ll pay him for it. So will you, and so will everyone else. Job is a right? Bullshit. Job is a curse. With a job you wouldn’t have enough time to spend with family and friends, or recreating. That’s how income is divided, fuckass. You probably use at least 10 of these huge corporations’ products and yet you’re whining like a bitch because no one will employ you. You have a RIGHT to start a business, to be your own owner ffs. And you’re looking for one? And protesting because you can’t be a wage slave? That’s just sick, it’s mental retardation at the very least. And you even have internet connection, so you’re nowhere near poorness. Equality is a bullshit dream, and thank God that lazy ass mofos like you don’t get as much as value creators and small business owners.

  • Johnny Dollar

    A real head-scratcher this piece is. I had to pull out the Constitution and the Declaration to simply return to reality. There is no provision in either document that says everything belongs to the government and it is up to the politicians to decide on the level of “tax expenditures.” Quite the contrary. What a relief to understand that Sam is simply hallucinating again.

    • ItsCool2BlameObama4YourProblem

      You’re right, those documents don’t state that. People also thought the world was flat at one point, and that it was the center of the solar system. Times change. How the world worked back in 1776, is not the same as it works now. While the basis of those documents may still hold true, sometimes a country needs to change with the times in order to make sure the quality of life is maintained for everyone.

      People need to stop thinking that the government is some dictatorship that they have no part of. You and your fellow Americans elect those people. When they blame the government, they need to point the finger at themselves.

      This is the part where conservatives start boiling about lobbyists and how money runs the government. That’s fine and all, but those are also the people they are defending anytime they rally cry about the free market, capitalism, and private enterprise.

      So if conservatives don’t want government, and they don’t want money to control their government, then how do you take the power away from the wealthy few, without enacting some type of legislation?

      We need something that states, “While you may have the ability to exert control and change using your financial resources, we the people feel it is unethical, immoral, and against the ideals of the common wealth to do so.”

      This isn’t a new problem, Henry Demarest Lloyd wrote about this in 1894.

      “If our civilization is destroyed, as Macaulay predicted, it will not be by his barbarians from below. Our barbarians come from above. Our great money-makers have sprung in one generation into seats of power kings do not know. The forces and the wealth are new, and have been the opportunity of new men. Without restraints of culture, experience, the pride, or even the inherited caution of class or rank, these men, intoxicated, think they are the wave instead of the float. and that they have created the business which has created them.”

      This explains the United States today…

      • Johnny Dollar

        So you think you are enlightened beyond where Jefferson and Franklin were. I would like to say I’m impressed, but that would be lying.

    • allen

      Johnny Dollar is the one hallucinating, freakin moron

  • Trucker

    The report (it took a bit of digging to find it) is at as of 7/19/13. Enjoy, it’s worth a read. Mr. P probably didn’t have a URL available at the time he wrote his interesting article.

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