Blue Point Trading Market View – April 18, 2013
Are the rich paying their fair share of the taxes? The top 10% of the US population demographics (click here) pay nearly 70% of all US taxes. Is this fair?
Remember income taxes are primarily levied at wages. Wages are only 44% of GDP – click here. 56% of GDP is investment income. To have investment income one must have assets – wealth. The top 10% have nearly 75% of all the assets – click here. So perhaps their current rate is more than fair. Also remember that investment income is tax hardly even at 50% of wage income. So what part of the top 10% of the US population comes from investment income. This data is harder to come by – but remembering our friend Mitt Romney from the 2012 US presidential election, majority of his income came from investment (as he architected it). He said he paid an effective rate of about 13% – but perhaps it was even lower, as he would not release his tax records.
So doing a little rough reverse engineered calculation – 75% (the top 10% ownership of investment wealth) which is the 56% of the investment portion of the GDP, divided by 1/2 of the wage taxation rate (the investment tax rate advantage), which is, (56% * .75) = 42% – 14% (subtracting out the bottom 90%’s portion). This equals 28% of GDP income getting taxed at half of what it should be (or at least as compared to ordinary wages). At a 35% wage tax rate, we are missing: (35% / 2 (the tax advantage)) * the 28% of GDP associated with the top 10% ($14T the US national GDP)). This is a tax short fall on $4T at the rate of 17%. This equals an entitlement of about a $680B tax break to the rich (top 10%). Whew!!! That’s over half the US budget deficit. Yes this is a rough calculation, and one can dispute the claims I am sure, but for sure the hype claimed by the rich, who dominate the media, will spin the numbers in their favor for sure.
But how can this be? People simply have no idea how poor they really are relative to the top 10%. They also have no idea that through years of lobbing how they have managed to show top line rates high, but the actual rate they pay being quite low, as compared to the rest of the population – fraud. You can see this in the attached thumbnail chart that shows that the US has one of lowest effect tax rates in the OECD nations. Most people believe, through this media hype, that it is the opposite. Does the US have a spending problem, perhaps, but it also has a huge revenue problem.
Is it no wonder that on the Forbes top 400 richest folks, most have some financial architecture aspect to their wealth – it is to get rich by avoiding taxes (the number of Hedge fund type folks is amazing on this list).
Daily Market View: (click here for the video)