I keep seeing this quote everywhere:

When Democrats want to raise taxes – seriously – they’re talking about 400 people’s taxes. 400 people. These 400 people own over half of America’s wealth and they’re wasting it by spending money convincing you that Democrats will raise your taxes…

And I got to thinking: what do taxes really look like to the really rich? I mean the really, insanely, gobsmackingly rich. So I thought I’d take a slightly closer look.

I went to college with a guy. I won’t use his name, but he is on “the list.” In fact, he’s comfortably in the top 100. He’s rich. Very, very rich. So rich that it would be almost physically impossible for him to spend all his money, no matter how hard he tried. But for argument’s sake, let’s put a dollar figure on it. I’ll choose one that’s easy to deal with, since I’ve been told that I’m ‘math challenged.’ Let’s say $4 Billion. That’s $4,000,000,000 Let’s compare that to the average teacher’s salary of around $40k. That’s $40,000 A lot fewer zeros. In fact it’s 0.001% or 1/100th of 1% of what the rich guy is worth.

So first let’s look at the basic tax brackets for 2011:

Tax Bracket Single Married Filing Jointly Head of Household
10% Bracket $0 – $8,500 $0 – $17,000 $0 – $12,150
15% Bracket $8,500 – $34,500 $17,000 – $69,000 $12,150 – $46,250
25% Bracket $34,500 – $83,600 $69,000 – $139,350 $46,250 – $119,400
28% Bracket $83,600 – $174,400 $139,350 – $212,300 $119,400 – $193,350
33% Bracket $174,400 – $379,150 $212,300 – $379,150 $193,350 – $379,150
35% Bracket $379,150+ $379,150+ $379,150+

So a single teacher falls in the 25% bracket. Married, they drop into the 15% bracket — depending on what their spouse earns. My classmate? The 35% bracket. And that’s if he’s making any income at all. Chances are very high that he’s making very little, if any, income. Instead, he earns all his money in interest and returns on investments. I’m actually pretty certain he doesn’t work. So let’s look at the tax rates for investment income. I’ll quote the whole thing here, and it’s by no means complete, but …

Capital gain income from assets held longer than one year are generally taxed at a special long-term capital gains rate. The rate that applies depends on which ordinary income tax bracket you fall under.

  • Zero percent rate if your total income (including capital gain income) places you in the ten or fifteen percent tax brackets.
  • 15% rate if your total income (including capital gain income) places you in the twenty-five percent tax bracket or higher.

Tax Rate on Dividend Income

Dividends are classified either as ordinary dividends or as qualified dividends. Ordinary dividends are taxed at your ordinary tax rates for whatever tax bracket you are in. Qualified dividends are taxed at a 15% percent rate. To be eligible as a qualified dividend, the dividends must be from a domestic corporation or a qualifying foreign corporation and you must hold the stock “for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date.” (Publication 550.)

(Via Capital Gains Tax Rates: Tax Rates for Short-Term & Long-Term Capital Gains.)

Look closely at that. If your total income, including capital gain income, places you in the 25% or higher bracket, then you only pay 15%. See what they did there? Dropped the highest earners who don’t actually work for a living back to the 2nd lowest tax bracket. For free.

So let’s do a little math here, shall we?

$4,000,000,000 is a lot of money. Not by government standards, but it’s a large enough pile of cash that neither you nor I would be able to crawl over it. So to make this easy — and it by no means is because of the thousands of loopholes put into the tax code by these very same people — let’s just say that on his $4B, he earns 5% a year. That doesn’t sound like much — though it’s a pretty healthy return, considering that you or I would get about 0.5% interest on our savings accounts. But they’re not like us. So his $4B returns him about $200,000,000 a year. That’s $200 Million. And he’ll pay 15% tax on that, which is $30Million. So at the end of the year, his $4B turned into $4.17B.

So what to do with all that extra cash? Well, for starters, a little plane for kicking around in, say a Boeing Business Jet (you and I call it a 737). But that’s only about $30M. If he saves his nickels for 2 years, he can upgrade to the much roomier 747-8 or an Airbus A-380 for right around $300M. That’s right, 2 year’s of interest income and he gets to buy a 747. Because he only pays 15% tax. Well, not really. even the 37% tax rate is ridiculously low for that volume of money.

Now for the math on the $40,000 teacher. For simplicity, let’s say he is single, so he’s in the 25% bracket. What?! He’s in a higher tax bracket now than the guy worth $4 billion dollars?? Yep. See what owning a few congressmen can get you? So out of his $40,000, assuming no deductions (I’m making math easy here), he pays $10,000 in taxes, leaving him $30,000 to live on. It will be many lifetimes before he can afford a plane. He’ll be lucky to afford a plane ticket.

To break it down further, our hapless Billionaire is pulling down $170,000,000 a year, after giving his 15% to the IRS, which leaves him earning $465,753 per day. After taxes.

Our teacher? $82.19 a day. Eighty two dollars and nineteen cents a day. Not counting the contributions to healthcare, pension, etc. And he works for it. Even if our Billionaire Buddy just put his $4B in a regular savings account, earning 0.5%, he’d make $40 million a year. For doing nothing other than breathing in and out.  That’s still enough to buy the tiny little Boeing 737 and have $10M to live on.

So you see why the tax breaks for the rich makes no sense, right? Is my old friend creating jobs with his money? A few, yes. But is he paying his fair share? Clearly not. He’s paying a lower share — on a percentage basis — than the teacher. Yes, he pays more in dollars, but it’s the percentage that counts here.

So when the Republicans claim that the rich need a tax break? Guess what? They are lying. When they claim that the budget problems are the result of teachers’ pay and benefits? Yep, they are lying. They are not even just fudging things a bit. They are flat-out, bald-faced lying.

I’d even be good with creating a special tax bracket for people who make more money than god. But letting them drop to a tax bracket that is lower than the teacher is not just unfair, it’s wrong. And letting the Republicans demonize teachers and garbage men and janitors and people that work hard every day while giving tax cuts to people that are so astronomically rich that they cannot possibly spend all their money? That makes no sense in my universe. If it makes sense in yours, please explain it to me.

Update:

My brother, the scientist and nit-picker in chief, has pointed out a couple of things which I thought I would add. First:

Got a chance to read it – looks like the article says that the top 400 people control as much wealth as the bottom 50%. Disgusting, for sure, but still not the same as controlling 50% of the total wealth. Picking nits maybe, but I can’t help it – I’m a scientist ;-)

So you see I’m not just calling him names when I say he’s the nit-picker in chief. Then he added:

Today’s fun fact: 
From 1980 to 2006 the richest 1% of America TRIPLED their after-tax percentage of our nation’s total income, while the bottom 90% have seen their share drop over 20%. That’s a TRILLION dollars a year, one-seventh of America’s total income, that went to the richest 1% while 90% of us went backwards.

Just in case I wasn’t disheartened and pissed off enough. Thanks big brother. (Literally. He is my big brother.)