Slice of the Pie
“Taxes are the price we pay for civilization,” goes the old saying. Everyone agrees that we all should pay our fair share – what’s “fair,” however, is a matter of some debate.
Here, we examine the effective tax rate on households. The effective tax rate expands beyond simple tax brackets to include taxable income, deductions, Social Security and Medicare withholding, and capital gains taxation – the effective tax rate combines all these factors into one figure that reveals the true relative sacrifice each household makes.
For the curious: in 1997, Congress cut taxes on capital gains, setting an upper limit of 15%. The top 400 taxpayers in America derive nearly two thirds of their income from returns on investments. Is this smart policy to stimulate investment, or is it an unfair bias in the tax code?