Our government is funded by taxes assessed on the citizens and on businesses. In theory, we have a progressive income tax. That means that people who make very little money pay a small percentage of their income in taxes. People who make a lot of money theoretically pay a large percentage of their income in taxes. But it doesn't really work out that way because the politicians in Congress take bribes from rich people to write special provisions into the law that allow rich people to avoid paying taxes.
Think that's an exaggerated claim? It isn't.
For the average American working person, they work all year, get a paycheck, and taxes are withheld from their paycheck and sent automatically to the government. There are few ways they can cut their taxes.
For rich people, the tax laws are full of loopholes which allow them to cut their taxes.
Just look at the 1031 exchange. Let's say rich person buys a building for $1.0 million, and now it's worth $2.0 million. Instead of "selling" the building and paying tax on the gain, they sell the building, put the proceeds into a bank account, buy a substitute building within a certain period of time, and pretend that they never sold at all. That way they avoid paying taxes by pretending that they are not really selling the building, they are "exchanging" it for a new building. And in a 1031 exchange, they don't have to pay taxes on that $1.0 million. It's a con.
The capital gains tax is the biggest con. Capital gains is a concept that relates to the profit made on the sale of an asset. Let's take the same building. Purchased for $1.0 million, and sold for $2.0 million. The seller has received $1.0 profit, or gain, or income from that transaction. But they don't want to pay taxes. So the rich people (who are the only people who make significant amounts of money buying and selling large assets) bribed Congress to create an entirely separate category they call "capital gains." "Capital gains" means the gain, or profit, earned on sale of an asset that has been owned for a certain amount of time. Instead of paying tax as income, the seller only pays 15% taxes, no matter how much money they earn from selling assets. This 15% is the current tax rate for capital gains.
In recent years, most rich people have restructured their earnings so they can characterize every penny they earn as a "capital gains." For example, we hear the CEOs of some big corporations bragging that they only take $1.00 in income per year from their corporation. This is intended to fool the public into thinking they are sacrificing their own interests for the benefit of the company. But that's a lie. The truth is that they receive millions of dollars in other forms, such as stock options, life insurance, pensions, healthcare, so that most of what they receive will not be subject to income tax. On the stock, they buy low then turn around and sell high, but only pay capital gains, or 15% taxes on what really is just disguised income.
The effect of capital gains tax is to let rich people pay less and less taxes. Which means our government services are under-funded (schools closed, cops laid off), and working people have to pay more out of pocket just to survive, and/or they receive fewer services.
In 2007, for example, the wealthiest households in the United States reported the highest incomes ever since 1992, yet they paid the lowest tax rates.
Between 2006 and 2007, these wealthiest households saw their gross income or receipts rise by 31%, but they paid only 16.6% in income taxes. Contrasted, for example, to 1995 when the highest income Americans paid 30% income tax. These wealthiest Americans in 2007 claimed that 66% of their income was from capital gains, and therefore only subject to a 15% tax. It's a con.
For example, back in 1992 when capital gains was taxed at the rate of 28%, rich people only claimed about 1/3 of their income was capital gains. Now that the capital gains tax rate has been slashed to 15%, the same rich people claim 2/3 of their income is capital gains. And guess what? Part of the Republican platform is to eliminate taxes on capital gains altogether, which would mean that these rich people would get most of their astonishing income tax free.
Contrast this obscene increase in money paid to the rich with the devastating freeze on wages and income for most Americans. You want to know why these Wall Street criminals are so rich, and the rest of us are barely able to pay the bills? It's an institutional program, it is nationwide, it is supported by congress through corrupt laws, it is intentional, and inescapable for most Americans.
In the one-year period from 2006 to 2007, the wealthiest Americans saw their income increase by 31%.
From 1992 to 2007, the wealthiest American's income increased 399%. In horrible contrast, during that fifteen year period from 1992 to 2007, 90% of Americans saw their income increase by only 13% -- not even 1% per year, and certainly not close to being enough to keep up with the radical increases in the cost of housing and healthcare. It's not an accident that most of us have less money, and the rich throw their money around like kings. Welcome to serfdom.
See this recent item reported at the Nation magazine ("Tax Evasion"):
What should be done? There should be no separate tax rate for capital gains -- it should be taxed the same as ordinary income.
All income of any type in excess of $250,000 should be taxed at 90%. Why? People who earn that much money don't need that much money. It's all discretionary money -- they can throw it away, buy themselves gold-coated shower curtains, private airplanes and homes around the world, but they don't need the money. They can best afford to pay it in taxes.
Second, if it is taxed that much, people would lose the incentive of our current system which encourages them to steal the public blind. Wall Street criminals have been stealing from us and the world for at least a decade, without any consequences. If they had to pay 90% of what they steal in taxes, many of them wouldn't risk going to prison to continue their criminal enterprises.
Third, the people who have profitted from the insane policies of recent decades (including the WTO and free trade treaties, tax changes, wars) are the rich. The debt in this country has been caused by those same policies. The rich should be taxed to pay off the debt. Let's see how loudly they scream about paying down the debt if they're the ones who have to pay it.
Fourth, a democracy cannot survive when a small portion of the people are so obscenely rich. The way our government works today, the politicians all take bribes from the rich, then do as the rich dictate. The only reason we have the "free" trade policies of the corporate front group the World Trade Organization (WTO) is because corporations paid enormous bribes to get those treaties passed. The reason our jobs have been sent overseas is because our politicians took bribes to change the laws and let those jobs be taken overseas.
The reason our markets are flooded with cheap and often dangerous products from third world countries is because our politicians took bribes then voted to eliminate tariffs, eliminate quality control or other restrictions designed to protect the public, and voted to allow rotten, filthy, sometimes deadly food to be imported and dumped into our supermarkets. Buyer Be Damned.
Even if we passed a strict public financing law, politicians would continue to find ways to take bribes from the rich. One way to re-gain control of our government, to try to salvage what's left of our democracy, is by cutting the rich off at their knees, taxing them to death to use their language, and restoring the middle class and whatever is left of our democracy.