Government

It’s not the wealthy who get the largest tax breaks

Goggle the topic and you will find numerous articles that purport to demonstrate the unfairness of the tax code in favor of the rich. It’s not only the effective income tax rates paid, but certain tax provision such as taxing capital gains and qualified dividends at a lower rate not to mention the tax-free earning on municipal bonds that are criticized.

Needless to say these lower tax rates are available to anyone who has dividend paying stocks or invests in municipal bonds. Regardless of the fact that the top 5% of earners pay over 58% of all federal income taxes, it’s true certain tax provisions provide greater benefit to higher income individuals because they actually risk money and invest, but it’s certainly not limited to billionaires and millionaires.

However, those benefits are modest compared to the ones applicable to average American workers. About 156,199,800 Americans, or 49 percent of the country’s total population, receive employer-sponsored health insurance.

The annual average cost for family group health coverage is nearly $20,000. Keep in mind that cost generally does not vary by worker income level. The median household income is about $62,000 per year. That means that half of all workers receive nearly a third of their compensation tax-free and many at lower income levels perhaps 50% tax-free.

Now you might say, what about the fact the workers pays 25% to 30% of those costs? Section 125 of the Internal Revenue Code provides that worker contributions can also be tax-free.

And then you have other benefits directed to average Americans; the flexible spending account, the health savings account, the health reimbursement account all provide tax-free income or tax-free investments. How about Roth IRAs and 401ks?

In fact, most of the government’s top tax losses (revenue losers) directly benefit average Americans over the wealthy.

Source: https://www.taxpolicycenter.org/briefing-book/what-are-largest-tax-expenditures

Categories: Government

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3 replies »

  1. I think I get the point you are trying to make here, Mr. Quinn. But I have to take exception to the wholly and utterly defective premise underlying this TPC article – and Government tax policy, for that matter.

    And that utterly defective premise is just this: That somehow ALL generated income belongs to the Federal Government FIRST, and any portion allowed to be kept by the actual income generators is somehow a Government “Expenditure” or “Subsidy”.

    Perhaps the most offensive artifact of the extent of that defective premise is listed in the “Notes:” to the cited TPC article. It states that, “… the U.S. Treasury estimated that the total income tax expenditures from the exclusion of NET IMPUTED RENTAL INCOME totaled $131.1 Billion for FY2019 …”. [Emphasis, mine] The only reason it’s not at the top-of-the-list in the TPC panel is that the “Joint Committee on Taxation” doesn’t consider it an “expenditure”. Also, the 2017 Tax Cuts and Jobs Act evidently removed “imputed rent” from Treasury’s vernacular.

    For those who are not familiar with the concept of “imputed rental income”, it is the home RENT that I am NOT paying to myself (or any other landlord) on the home that I currently live in and OWN OUTRIGHT. According to the U.S. Treasury, since I’m not paying TAXABLE rental income to myself on the home that I OWN, that is somehow a “tax exclusion” and “expenditure” on the part of the Federal Government. If it weren’t so sick, it could be funny.

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    • Shayne… you have that right. Imputed rent is the craziest idea that academic economists have ever come up with. I have read many articles on the subject trying to make sense of it and in no way does it make any sense to me. I haven’t seen anywhere that the lost opportunity cost of buying the asset is factored into the equation.

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