Democrats want to tax the very rich. This is who they are

In total, the legislation would bring in $ 1,000 billion in additional income to high-income Americans, according to the committee.

“I don’t want to punish anyone. I’m a capitalist. If you can make a million or a billion dollars, that’s great,” Biden said in an economic speech Thursday. “All I’m asking is that you pay your fair share. Pay your fair share like middle class people do. But that’s not happening now.”

Here are three things to know about the very rich:

1. It took $ 540,000 in adjusted gross income to enter the top 1% in 2018, according to the latest data from the Internal Revenue Service.

This is the highest threshold since at least 2001. (The agency changed its methodology so that past data is not strictly comparable.)

Over 1.4 million returns fell into this category in 2018.

The dollar had climbed steadily at the turn of the century before plunging in 2008 and 2009, during the Great Recession. It started to rise again as the economy and the stock market improved.

The top 1%, however, is not a static group. Only 30% of taxpayers were in the cohort for five consecutive years between 1991 and 2009, on average, according to a 2013 study by economists at the Treasury’s Office of Tax Analysis.

2. The richest 1% made up about 21% of total adjusted gross income in 2018.

The figure has fluctuated with the business cycle since 2001, hitting a low of 16% the following year and nearly 23% in 2007, according to the IRS.

Most of their income comes from investments rather than labor. Their salary income was only about 11% of total salary and income income in 2018, but for 67% of total capital gains income and about 50% of total eligible dividend income, said Erica York, economist at law. Tax foundation.

Meanwhile, the share of income reported by the poorest 50% of taxpayers was 11.6% in 2018.

The Tax Policy Center uses a much broader definition of income, including interest on student loans, employer-paid health insurance, pension contributions, employers’ share of payroll taxes, and income. from cash transfers.

Using the center’s definition, the top 1% made up 15.8% of income and paid 37.3% of federal personal income taxes in 2020, said Robert McClelland, senior researcher at the Tax Policy Center.

3. The richest 1% paid $ 615.7 billion in federal income taxes, or about 40% of the total, in 2018.

This is the highest percentage since 2001, when it was 33.2%, according to IRS data. The share rebounded a bit after that, but has risen steadily since 2016.

Part of the reason the rich pay a larger share is that the expansion of refundable tax credits and the near-doubling of the standard deduction as part of Republicans’ tax cuts have reduced the share paid by lowest on the income scale, York said.

The percentage of federal income tax paid by the bottom half of taxpayers fell from 4.9% in 2001 to just under 3% in 2018.

However, just because the rich paid a higher share in taxes doesn’t mean they are paying more money to the federal government, McClelland said.

The amount paid by the top 1% in taxes in 2017 was about the same in dollar terms. And their average tax rate was 26.8% that year, up from 25.4% in 2018.

In contrast, the bottom 50% tax rate was 3.4%, according to the IRS.

In the longer term, the tax rate for the rich has fallen sharply since World War II. It fell from around 40% in 1945 to around 25% in 2015 for the top 1%, according to the Tax Policy Center, which used a different measure that includes untaxed capital gains. But the rate for all taxpayers has remained relatively stable over this period.

Here’s how Democrats want to tax the rich:

The top marginal tax rate would rise to 39.6%, from 37%, and would apply to single tax filers with taxable income over $ 400,000 and married couples earning more than $ 450,000 per year.

The maximum capital gains rate would drop from 20% to 25% for people earning over $ 400,000 and couples earning over $ 450,000. That’s lower than Biden’s proposal, which would have taken it to the top marginal wage and salary rate of 39.6% for those earning more than $ 1 million a year.

And this net investment income tax would be extended to cover business income included in taxpayer personal returns, known as transmitted income. Currently, it is only levied on interest, dividends, capital gains, and other forms of investment income.

The legislation would also end the higher estate tax exemption passed as part of Republicans’ tax cuts this year, instead of post 2025. The exemption would be $ 6 million per person in 2022, a sharp drop from this year’s level of $ 11.7 million.

Democrats plan to push the $ 3.5 trillion budget package through reconciliation so it doesn’t need Republican support in the Senate.