How do the rich pay less in taxes?
- LLv 42 months ago
They don't. If you've ever worked in HR, doing Payroll, you'd already know this.
- STEVEN FLv 72 months ago
In fact, they usually don't even pay a smaller % of their taxable income.
- 2 months ago
Actually, Paying less taxes make them rich. Rich people like Robert Kiyosaki say that I would rather hire an Expensive Accountant than paying excessive taxes.
- AmyLv 72 months ago
The main reason is that they get paid in stock instead of money.
There's also the fairly low cap on Social Security tax, and the ability to hire an accountant to find loopholes. Note that the rich don't pay less in absolute terms, but less as a percent of their income.
Consider three taxpayers:
Someone earning around $30K pays 7.65% in Social Security and Medicare taxes, about 6% in federal income tax, and maybe 2% in state income tax depending on the state. Then they probably have to spend it all and pay another 6% in sales tax.
Overall perhaps 25% of their income goes to taxes.
Someone earning $1 million who has $20K of itemized deductions pays about 3% in Social Security and Medicare taxes, 33% in federal income tax, and 5% in state tax. If they spend half their income then they pay sales tax on that.
Overall around 45% of their income goes to taxes.
Someone earning $1 million in salary and $20 million in stock options pays the taxes described above on the $1m, but now that's only 2.1% of their total income. If they choose to sell the stocks, they pay 20% federal tax on the portion that they sold. Plus state tax, and sales tax if they buy something with the money.
So they pay anywhere from 2.1% to 30% of their income in taxes.
And they have some control over the number by deciding which stocks to sell when.
This is why CEOs do publicity stunts like "reduce their salary to $1". The salary is a small, heavily-taxed part of their total compensation. The stunt raises the stock value.
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- Christin KLv 72 months ago
Lots of ways. They move their money into tax shelters--businesses or institutions where taxes are not levied. They keep good records so that they know exactly how much expense offsets how much gain. They put their money in off-shore or overseas banks. The do a lot of investing in the stock market because the tax on capital gains from stocks is less than income tax. They manage multiple assets by incorporating. They take advantage of exemptions. And a lot of them live on credit--that is earned by having so much in assets, not by what you ACTUALLY have in the bank. And, they can hire professionals who know how much you can get away with having in liquid assets before your taxes go too high--these pros are well-versed in keeping your assets from becoming taxed.
- SlickterpLv 72 months ago
Less than what? They pay what they owe.
- StephenWeinsteinLv 72 months ago
More of their income is from dividends and capital gains, which are taxed at lower rates than income from work.
- 2 months ago
They pay less in comparison. The upper 1% takes home 40% of all new wealth created every year, but the highest tax rate is 37%. That means, by definition, that they're paying less than their fair share.
Another tax cut that nobody talks about is the 6.2% tax break you get if you make more than $137,700.
2020 Tax brackets for single people are as follows:
10% for all earnings up to $9,875
12% from 9876 to 40125
22% from 40126 to 85525
24% from 85526 to 163300
32% from 163301 to 207350
35% from 207351 to 518400
37% for anything over 518400
Medicare is 1.45% for anything under 200000 earned per year and 2.35% for anything over 200000
For the purposes here, let's say that these people are not self-employed. They all have the same filing status, all live in the same state that doesn't have state or municipal income taxes and the only thing that's different is their income
A makes 5,000
B makes 30,000
C makes 80,000
D makes 100,000
E makes 150,000
F makes 175,000
G makes 205,000
H makes 500,000
I makes 600,000
J makes 6,000,000
K makes 60,000,000
What percentage of their income do they pay that year in taxes? Here's the formula for the income tax itself:
10% 0 + (I - 0) * 0.1
12% 987.5 + (I - 9875) * 0.12
22% 4617.5 + (I - 40125) * 0.22
24% 14605.5 + (I - 85525) * 0.24
32% 33271.5 + (I - 163300) * 0.32
35% 47367.5 + (I - 207350) * 0.35
37% 156235 + (I - 518400) * 0.37
Where "I" is the income
A is easy to calculate. He pays 10% + 6.2% + 1.45%, for a rate of 17.65%
B pays 12% of his earnings greater than 9875 and another $987.50 on top of that. With SS and Medicare, his taxes work out to 18.99%
C pays 24.39% of his income in the form of taxes
D pays 25.73% of his income in the form of taxes
Here's where things start to change. Only the first 137700 of E's income will be subject to SS tax. 137700 * 0.062 = 8537.40
Income + SS + Medicare
14605.5 + 0.24 * (150000 - 85525) + 8537.4 + 2175 =>
40791.9 / 150000 = 27.19%
E pays about 27.19% of his income in the form of taxes.
F pays $37015.5 + 8537.40 + 2537.5 = 48,090.4
48090.4 / 175000 = 27.48%
G pays 2.35% on 5000 and 1.45% on 200000. So let's amend our formula to include this new change:
200000 * 0.0145 =>
2 * 10^5 * 145 * 10^(-4) =>
290 * 10 =>
Our amended formula will be:
Income Tax + 8537.40 + 2900 + (I - 200000) * 0.0235 =>
Income Tax + 11437.40 + 0.0235 * I - 4700 =>
Income Tax + 0.0235 * I + 6,737.4
33271.5 + (I - 163300) * 0.32 + 0.0235 * I + 6737.4
33271.5 + 6737.4 - 163300 * 0.32 + 0.32 * I + 0.0235 * I
0.3435 * I - 12247.1
(0.3435 * 205000 - 12247.1) / 205000 =>
47367.5 + (I - 207350) * 0.35 + 0.0235 * I + 6737.4
47367.5 - 207350 * 0.35 + 6737.4 + 0.3735 * 500000 =>
Notice how H is almost in the 37% tax bracket, but he's only paying 32.31% in taxes? If there was no social security cap or change to medicare, he'd be paying 37.61%. So far, he has a nice 5.3% tax break that people who are making less aren't going to get.
Let's look at K
K makes $60,000,000
Income tax owed: $22,164,427
Social Security tax owed: $8537.40
Medicare tax owed: $1,408,200
Total taxes: $23,581,164.40
Effective rate: 39.3%
Which is what we should expect. That's basically the 37% + 2.35% at that point. But as I demonstrated before, if there was no cap on the Social Security, then that's another 6.2% on their income. In 2015, the total income of US citizens was 10.14 trillion dollars. We've already seen how much of a break the super rich are getting at just $500,000 per year. 3% of households make more than 250,000 per year. Even if only 1% was over 500,000, you're looking at about 40% of that 10.14 trillion not getting taxed for social security
10.14 * 10^12 * 0.4 * 0.062 works out to about $250,000,000,000 per year that could go towards SS, but isn't.
And that's just dealing with percentages. If we look at the actual take home pay for each, we get this:
A takes home $4,117.50
B takes home $24,303
C takes home $60,488
D takes home $74,270
E takes home $109,215
F takes home $126,910
G takes home $146,821
H takes home $338,450
K takes home $36,420,000
How much does it take to live comfortably? Does a person who makes $60,000,000 in a year work 1000 times as hard or as much as a person who makes $60,000? A person making $60,000,000 will make in one year what it would take 25 people making 60K per year to make in 40 years. They've stopped paying for social security somewhere around 3:00 pm on January 1st. That's abhorrent.
- JudyLv 72 months ago
usually they pay more, not less.
- Mmm JLv 72 months ago
If I make $200k earned income (have a job) and am in a 30% tax bracket, that means $60k in taxes get paid. I get deductions for mortgage interest, charitable contributions, some other stuff.
If I make $20K per year, I pay no income taxes.
If I inherited $1 billion, don't work, have the money invested in places that pay non-taxed dividends, I paid several million in inheritance tax one time, the rest is tax free.
If I make $90K per year at a job, my tax rate is 20% or $18K.
The "rich" actually pay more $ in taxes than poor people. But lots of people think they should pay more. This is an incentive for people to not be hard-working. Democrats, Socialists and Progressives want everyone to make the same amount of money because, you know, being a clerk at a retail store or a highly skilled computer engineer or a brain surgeon should result in the same annual salary...
That's why, when there is a tax cut, wealthy people benefit. They have money available to be taxed... Poor people don't, but they get to take advantage of things like tax credits (Child tax Credit, Earned Income credit) that gets money back to them over what they paid in.
The top one percent (incomes above $515,371) paid an average income tax rate of nearly 27 percent. (according to NTUF)
Wealthy people pays lots of taxes. If you believe wealthy people don't, then you don't understand tax law.