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New Millionaire Income Tax Bill Introduced

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Representative Jan Schakowsky (D-Illinois) introduced new legislation, the H.R. 1124 Fairness in Taxation Act, on Wednesday, March 16th, that would introduce new tax brackets for those who earned more than $1 million dollars a year. The current top income tax rate is 35% on income starting at $373,650 and the new legislation would introduce five new brackets, starting at $1 million dollars.

The new brackets would be:

  • $1 – 10 million: 45%
  • $10 – 20 million: 46%
  • $20 – 100 million: 47%
  • $100 million – 1 billion: 45%
  • $1 billion+: 45%

I don’t know what’s more stunning: the reality that there are people who make over a $1 billion a year or that there are people who make over a billion a year and pay the same tax rates as someone making a fraction of that.

In addition to adding new brackets, the bill would also tax capital gains and dividend income as ordinary income for those whose income was over $1 million. According to the Citizens for Tax Justice, these new rates and changes would raise $78 billion, though it’s unclear how that number was calculated.

As for historical precedence, the last time the top rate was over 40% was back in 1986 when the top rate was 50%. Just a few years earlier, in 1981, the top rate was 70% for incomes over $215,400 ($524,421.99 in 2011 dollars). Before you think those rates were high, the top rates have always been very high, peaking into the ninety-percents through World War 2 until the early 60′s. The Tax Foundation has a list of historical tax rates since 1913.

What do you think of these new rates? Would youl ike to see them implemented?

{ 84 comments, please add your thoughts now! }

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84 Responses to “New Millionaire Income Tax Bill Introduced”

  1. mikestreb says:

    Right now, I make WAYYYYY less than a million dollars a year… So I am cool with it now…

    But, I would be pissed if I were making a million!!!

    As long as they repeal it in like 20 years, when I am making over a million a year, I don’t mind it.

    • Courtney says:

      Seeing as how you’d still pay the current rates for income between $373,650-$999,999 and only 10 cents more per dollar above that, I don’t see the issue. I completely support this and wonder why it took so freaking long for someone to get this in order. Hope it passes!

    • NateUVM says:

      Love how people always want to take it easy on the “rich” because they think that someday they will qualify. It’s been part of the discussion when discussion how rational people make irrational economic decisions, but here it is, spelled out by the comment referred to.

      Point is, there may be a good arguement against these new tax brackets, but assuming that you will someday aspire to be subject to them is one of the worst…from a pure economic perspective. Morally….? Maybe it’s the way to go (putting yourself in OTHER people’s shoes).

      • Strebkr says:

        The AMT system started like this. Be careful. Back in the day it was designed to tax less then a few hundred people. Well over a few decades inflation happened and we are all making more money. Those rates were not indexed for inflation. I am against this UNLESS it has an inflation factor. I don’t want to get caught up in this in a few decades.

        But, I’m generally all for it.

  2. Jared says:

    As a right-leaning fiscal moderate, I really like where this proposal is going. While I’m not a fan of tax increases (is anyone?), the deficit is a major problem that is only getting worse.

    I think the whole ‘trickle-down economics’ experiment has gone on long enough. It clearly hasn’t worked, and the highest earners have enjoyed historically low rates in the last decade. It’s time to pay the piper.

    Unfortunately, this proposal will never gain traction in a Republican-controlled House. This is exactly the sort of thing that Republicans unite against, even while barking about the travesty that is the deficit. The hypocrisy is maddening.

    Quasi-related tangent: I am hoping that Mitch Daniels, Governor of Indiana, runs for President. So far, he’s one of the few high-profile Republicans willing to tackle the major deficit issues (Medicare, Soc Security, defense).

    • uclalien says:

      No matter how high the tax rate has been, the government has always found new and exciting ways to run a deficit. Read my comment at 3:49am for the supporting data.

      And please people, no one say, “Well…Clinton had a budget surplus.”

      Yes, if you ignore the fact that he:
      1) ran a $446 billion deficit while in office (2005$),
      2) “borrowed” from Social Security to make his budgets look better than they actually were (the way every president has done going back to Reagan), and
      3) lucked into tech a bubble that burst just as he was leaving office.

      Then yes, his administration ran a surplus.

      • Jared says:

        Regarding deficits persistently happening in spite of the high tax rates, your point is well-made. I agree that spending cuts ought to be just as much of a solution to the deficit problem, if not more.

        9 out of 46 years is not good, but it is better than 0 of the last 9! Imagine how much worse the deficits would have been in those years without those high taxes on the rich.

        This much is clear: we need a two-pronged approached. None of it is going to be fun, but taxing millionaires seems like a sensible place to start. The other sensible starting point would be actual cuts to entitlement programs (the horror!) and defense (how un-American!). Any other cuts are way too small to fix the problem.

        • uclalien says:

          I fully agree regarding entitlements and defense. There’s no reason we need a military presence in over 200 countries around the world. Heck, the Korean War “ended” over 50 years ago, yet we still have a military presence of roughly 30,000 troops. And good news, as of today, we are now involved in another war!

          Obviously 9 out of 46 is better than 0 out of 9, but that completely misses the point. It shouldn’t matter how much a person makes. If it requires confiscating 90% of their income to balance a budget, it is 100% a spending problem. (And I’d be willing to make the same argument for tax rates that are only a small fraction of that amount.)

          Some more data:
          Inflation adjusted federal revenues increased by 77% between 1980-2009 (up 307% nominally). But over that same time period, inflation adjusted spending increased by a whopping 194% (up 577% nominally).

          This is more than enough proof that one prong of your two prong approach (the taxing prong) has been in practice for at least the past three decades.

          The fact is that federal revenues are more than plentiful to meet the U.S. government’s Constitutional mandate. The problem is that it continues to assume duties far beyond that mandate.

        • Strebkr says:

          HAHA Great comment!

      • Damon Day says:

        I agree. You give more money and they find new ways to spend it. This has nothing to do with rich people in my opinion. Lets see the government have some discipline and at first balance the budget with what it has.

        Then we can talk about higher earners pitching in more only on the condition that the budget stays balanced and the excess money goes to pay down debt only.

        If you don’t do that, then nothing will change.

  3. Wil says:

    I also am nowhere near the target group. However, we have a spending problem, not a revenue problem. Until we get spending under control, raising taxes won’t do much good.

    • Tyler says:

      I wholeheartedly agree! I wouldn’t call the last decade the epitome of a ‘trickle-down economic’ experiment.

    • Courtney says:

      That’s like saying “We have an exercise problem, not an eating problem.” :-)

      • cubiclegeoff says:

        This is the best analogy on this subject I think I’ve ever heard.

        • Courtney says:

          Thanks, cubiclegeoff! (Apparently just saying “Thanks!” is rejected as being too short…)

      • John says:

        Yeah, not quite. If you applied that analogy to our current budge crises, we would have run a million miles with little food and water. We’re going to die unless we slow down! Our problem is spending, not taxing…

        • Courtney says:

          Well, you reversed my analogy, so yeah, not quite. ‘Losing weight’ is diet AND exercise, just as ‘cutting the deficit’ is reducing spending AND increasing taxes. Generally you can’t successfully cut enough calories OR spending to solve the respective problem; you also have to increase exercise AND revenue.

          • Matthew says:

            But I would hope you have an issue with the idea that many in government have overspent peoples tax money and that to get out of this situation part of the solution shouldn’t be charge tax payers more.

            Government overspent so grossly for wars, programs, anything to get reelected (both Dems, and Repubs did)

            The public should not be responsible for unnecessary expenses that were used to get elected or fulfill a personal agenda.

          • cubiclegeoff says:

            Our problem is has generally been spending and not taxing. Both are necessary. You can’t just cut spending, because that will never balance it out alone.

        • NateUVM says:

          Fine. But can we do away with the tax CUTS that have occured? Repeal the tax cuts and then raise them no further. THEN attack the spending.

          [Spending, which, by the way, was necessary to buoy the economy through that little rough patch a couple of years ago(still going?), by the way...? You know, where the governemnt was the ONLY one that wanted to buy anything...?]

      • skylog says:

        this is very well put, and i am going to “borrow” this from you quite a bit…if that is ok :)

        • Courtney says:

          Feel free :-)

          And Matthew, yes I have a problem with overspending. Particularly when it comes to bonuses for banking CEOs, subsidizing the most profitable companies in the world (oil), and killing Afghani citizens. The current screaming about NPR and Planned Parenthood are drops in the bucket compared to those. NateUVM and cubiclegeoff have already put it nicely – repeal the tax cuts that were never balanced by spending cuts in the first place, then cut spending. If at that point you can cut enough to exceed the new levels of tax revenue, you can think about cutting the tax rates correspondingly.

          • Texas Wahoo says:

            OR – we could repeal all of the spending increases in the last decade. If at that point you can raise enough money to exceed the the new levels of spending, you can think about spending more money.

          • Courtney says:

            Okay, yes – let’s immediately repeal all of the spending increases in the last decade. All troops in Afghanistan and Iraq come home immediately. All banks repay their TARP loans immediately. I can get behind both of those things. But the tax cuts still weren’t paid for, because they were cut in 2001 without any corresponding cuts in 2001 spending.

          • Texas Wahoo says:

            “All banks repay their TARP loans immediately”

            If I’m not mistaken, that has already happened. Now GM on the other hand….

    • Anonymous says:

      Drinking the tea party dogma again?

  4. tbork84 says:

    The real shocking thing is that the people making a over a billion a year pay far less than 35% in taxes because the majority of it is taxed at the capital gains 15% rate. I do agree with taxing capital gains at a lower rate since it is money that has already been taxed as income at some point, but the bill does bring up a good point. At what point does the “value” society gains from taxing capital gains at a lower rate get surpassed by the very wealthy paying lower taxes.

  5. Texas Wahoo says:

    Why is the difference so small after you get over $1 million? I would prefer a lower tax on 1-10 million and a higher tax on those above 10 million (and even higher on those above 100 million and then 1 billion).

    $1 million in a year is a ton of money, but remember that there are scenarios in which your income fluctuates a ton, such as if you’re selling your business, etc.

  6. Michael says:

    I’m all for taxing Michael Moore and friends at 99%. What do you think? Let’s just take it from them … It’s ours, right? It’s only fair. Do we really think that “Millionaires” won’t find a way to keep what they have earned or take their skills and capital elsewhere? Really?

    Representative Jan Schakowsky (D-Illinois) could care less about a fair tax system and fixing our mountain of debt. She is more interested in taking from some and giving it to others. She just wants to be the one to determine “fairness” so she can get the credit from the receivers. Good luck with that.

    • Ben says:

      Micheal, If you read the article, you will see that they aren’t taxing anyone at 99%. Please read the article fully before commenting, it will help everyone. Thanks.

  7. cubiclegeoff says:

    I’m okay with these numbers. although not sure why $100 million+ is less than $10-100 million. Even if I was making this much money, I would be okay paying these taxes. I know people hate to pay taxes, but the money is needed for a lot of basic pieces of life, a lot more with more connections than anyone ever thinks.

  8. Traciatim says:

    Note to all million dollar income earners in the USA. The top federal income tax bracket in Canada is 29.00% above $128,800 for 2011. We welcome your millions.

    • MikeArgh says:

      They won’t come. They hate you and your socialized medicine!

      Ok, the ones that are actually for health care reform in the USA will probably stay and pay higher taxes because they are also the ones that realize that they have benefited a lot from this country and are willing to pay for those benefits.

      But, the ones that really think that they earned it all by themselves(even while cashing bonus checks that might as well have been signed by Uncle Sam, himself) won’t come because they think you guys are a bunch of “commies.”

  9. Jeff says:

    The earned income tax is minor. The big boot to rear end in this bill is considering capital gains as ordinary income for high income earners.

  10. zapeta says:

    I think this is a great idea, especially to tax the capital gains if you make more than a million. Give the context of previous top tax brackets these are still relatively low.

  11. Don C says:

    As a CPA with high net worth clients, I am for it, becasue the value of my firm’s services will skyrocket. What will happen is that people in these income brackets will defer the taxation of their income.

    As a person with a brain, how could you be for this? The government doesn’t need to find more ways of generating revenue. It has to prioritize the current spending and find more ways to stop wasting it on nonsense.

    The new rates will generate $78B. Big deal. This new big gov’t we have will spend that amount on fixing potholes.

    • NateUVM says:

      You drive around much? There are a LOT of potholes out there. Honestly, could you have picked a worse metaphor to support your argument…? I would double these rates if it guaranteed improved infrastructure.

      • Texas Wahoo says:

        Aren’t potholes repared by the state, even on interstates?

        • Courtney says:

          States get federal transportation dollars. That’s why the drinking age is 21 in every state.

          • Texas Wahoo says:

            I guess i just don’t see the reason to have the federal government raise more in taxes in order to fix the potholes in your state because your state is apparently failing so miserably to provide a basic service. Maybe your state taxes are too low… because I don’t have much of a porblem with potholes.

          • cubiclegeoff says:

            Considering states all depend on each other for something or another, the road conditions between them are important. However, I don’t care for the fact that high population states are subsidizing lightly used roadways (such as county and local rural roadways) in low population states.

        • NateUVM says:

          Whether it’s directly from the State or subsidized at the Federal level, raise my taxes, save my suspension/tires/vertebrae.

    • NCTaxPro says:

      Regardless of what you think of Don’s metaphor, his basic point is correct. People with high levels of income will figure out ways to shelter more of it from taxes as the rates go higher, which almost certainly means that they will have a lower effective tax rate.

      If this is all there is to Rep. Schakowsky’s bill (and the full text doesn’t appear to be available yet online so I don’t klnow), it’s more likely to be counterproductive than productive.

    • Ben says:

      Donny boy, don’t you think millionaires already hide/move their money??? You should know as it seems it’s your job. If you are so concerned with your high net clients “hiding” their income why do you allow it?

      Also, I do agree that $78B is a big deal, and I welcome it.

      • Jeff says:

        He isn’t concerned with it. This new bill will require more creative ways to hide their money, the service he provides. He is saying he’s looking forward to increasing the amount of assets he manages, and therefore his income.

      • Strebkr says:

        Hiding sounds like you are doing something wrong. The US Tax code says you can do anything in your power to minimize your tax burden, so long as it does not break the rules. So, if the rules are out there, rich people will pay lawyers and tax accounts tons of money to find the loop holes and tax efficient things to do with their money.

        No problem in that.

  12. Ryan says:

    We could cut everything out of the budget except for social security, medicare, and defense and still wouldn’t be able to have a balanced budget. Cutting spending, sure, is needed. Defense would be a great place to start. But that discussion isn’t even allowed to happen. We could also stop sending thousands of people to jail every year for weed and save millions (billions?) on DEA costs.

    Taxes have been going down for decades while the deficit increases. Not all of that is due to spending.

  13. uclalien says:

    Despite having a top income tax bracket greater than or equal to 70% from 1936-1981 (>90% from 1944-1963), a budget surplus was only achieved 9 times in those 46 years. And the cumulative deficit over that period was $3.5 trillion (in 2005 dollars).

    I’m sure it will be different this time though.

  14. I am really saddened by this act actually. I am not a millionaire, but our country was made great by capitalism and limitless possibilities. The higher this tax % goes, the less incentive people will have to make more money. Ultimately, I think it slams a door on our country’s future.

    If I were making $999,000 per year, I would really start to reconsider making more. That is not the mentality you want to have from a potentially powerful U.S. citizen.

    • Jim says:

      Taxes were substantially higher in the past and yet here we are… 49% is nothing compared to the 70%, 80%, and 90% of years past.

      • Texas Wahoo says:

        And they were also much lower in the past than they are now. 49% is huge compares to 25%, 7%, or even no income tax…

    • cubiclegeoff says:

      Not sure how this makes sense. This seems to continue the confusion about our tax rates. If you made $999,999, and you were considering not making that extra dollar for the year, that would be foolish since that $1 would be the only money that would be taxed at 45%, not the other $999,999.

      Most people I think would continue to make money and continue to have possibilities. I don’t think this would impact our country’s future at all.

    • NateUVM says:

      You DO realize that these tax rates are marginal, right? That if you made more than your $999,000(sic) you would STILL be making more money with the new tax rates than if you didn’t earn the money? There’s no disincentive. A MARGINAL disincentive, perhaps, but…why would you stop working hard? THAT would be against the “American Way,” if you ask me…

    • Aaron says:

      Right now, if you went from earning $999,000 to 101,000 you would owe an additional $700 in taxes. Under this proposal, you would owe $800 instead.

      If I were introducing this legislation and trying to strike a balance between revenue generation and “marketability” of the bill, I’d probably lower the rates about 5%. Or just make a single “super high income” bracket, perhaps $5 million+ at 45%. Just having any higher bracket would be groundbreaking in this day and age.

      The biggest change proposed here, as other have noted, would be taxing capital gains as ordinary income (over a certain amount). Even that, at our current rates, would go a long way to address the situation Warren Buffet noted in which his effective tax rate is less than his secretary’s.

      • Aaron says:

        btw, my reply was to LifeAndMyFinances, and was trying to make the same point about marginal rates as cubiclegeoff and NateUVM.

      • Texas Wahoo says:

        I don’t think you’re accounting for the fact that people that make over 1 million will have their capital gains taxed at their individual rate. So if you go from 999,000 to 101,000, and you have a lot of capital gains that year, your taxes will go up significantly. There would be a huge incentive to stay under the 1 million.

        • cubiclegeoff says:

          there would probably be an exemption for a certain amount of capital gains, so I don’t think it would be a big deal.

        • NateUVM says:

          Well, now you’re mixing two seperate topics….

          Yeah, your tax on earned income would go up due to the change in the marginal tax rates. And yes, your taxes on long-term dividends would increase if that part of the package passed. But you need to look at the two seperately. In teh example we’re looking at here, we’re just looking at the earned income side.

          So, yes, if you add in the increase to long-term dividends, you wipe away some of the earnings that are left on the earned income side…but those are two seperate taxes with different basis for taxation… You’re clouding the argument, I think.

          • NateUVM says:

            Wait, I see what you’re saying now… You’re saying if the long-term piece is tagged to the earned income tier… Yeah, that becomes problematic. Sure.

            My solution… Change long-term dividends across the board, with NO tag to income. Gets taxed as earned income, no matter what your income is.

            See, no disincentive.

    • freeby50 says:

      “If I were making $999,000 per year, I would really start to reconsider making more.”

      You do understand that the 45-49% rate would only apply to additional marginal dollars earned right? The tax paid on the $999k would not differ if you made more.

      I don’t understand the logic of turning down extra money. If you made $999k and you could get a $100k raise then you’d decline or not bother??? Really?

      • Texas Wahoo says:

        Lets say you have a salary on 999k and capital gains in a given year of 500k. Would you rather have the 500k taxed at 15% or would you rather have a slightly higher salary and have the 500k taked at 45%? Personally, I’d rather not make the extra money.

      • freeby50 says:

        I’d rather make extra money and pay high taxes than not make extra money.

        More income – taxes > 0

        If someone says they don’t want to make more money becauses taxes are high then I get confused why they think thats smart.

        Whats AMT got to do with it? AMT max rate is 29%. Are they talking about changing AMT rates too?

        • freeby50 says:

          Also… I’m not arguing that I like high taxes or that I think taxes should be X% or Y%.

          My point is that if marginal taxes did go from 35% to 45% or whatever I don’t see how that is a reason to stop earning more money.

          • Texas Wahoo says:

            Because if you have just under 1 million in income and 1 million in capital gains, making 100k more to put you over the 1 million threshold will cause you to pay 300k more in taxes. (45k on the salary and 255k on the difference between 15% and 45% for capital gains) Therefore, to earn 100k more, you have to pay 300k more. That doesn’t make a lot of sense economically.

          • Jim says:

            They would have to adjust that dividend/cap gains bit a little because it “breaks” at the margin, which you’ve illustrated. Otherwise, if this gets implemented (which I doubt, at least in its current form) the stock market will probably drop a bit as people and institutions adjusted to the new tax rates.

    • Ben says:

      You’re truly saddened by this? Sad for whom? Do you honestly think people near the million mark are just going to give up everything because taxes are sooooo high?

      I tell you what, let’s try this out, and when a good solid majority of Americans are near the threshold and having problems getting by paycheck-to-paycheck we can revisit our tax percentages.

  15. Guy In San Antonio says:

    As a CPA, i can tell you that you could raise the tax rate to 100% on people over $1 million a year and it would fund the government for six weeks or so! They are such a small % of the taxpayers that raising the rates on the rich just doesn’t help much. Politicians are great at “soaking the rich” and class envy. The real problem is spending.

  16. Kevin1959 says:

    This may not be popular, but I believe in a fair tax system. I don’t make millions of dollars a year, but if I did I might feel a little cheated…assuming that most of my money wasn’t a capital gain. I think that we need a simplified tax code where everyone pays the same rate, even on capital gains. I don’t believe someone should be discriminated against and have to pay higher taxes just because they have been extremely successful in life. If I was so blessed and I worked hard to earn it, you would have to pry it from my hands.

  17. sophomore says:

    [ushmm.org]

    First they came for the Socialists, and I did not speak out —
    Because I was not a Socialist.

    Then they came for the Trade Unionists, and I did not speak out —
    Because I was not a Trade Unionist.

    Then they came for the Jews, and I did not speak out —
    Because I was not a Jew.

    Then they came for me — and there was no one left to speak for me.

    Martin Niemoller

  18. I Remember it well says:

    J.P. Morgan~
    “Capital must protect itself in every way…Debts must be collected and loans and mortgages foreclosed as soon as possible. When through a process of law the common people have lost their homes, they will be more tractable and more easily governed by the strong arm of the law applied by the central power of leading financiers. People without homes will not quarrel with their leaders. This is well known among our principle men now engaged in forming an imperialism of capitalism to govern the world. By dividing the people we can get them to expend their energies in fighting over questions of no importance to us except as teachers of the common herd.”

  19. jimbo114 says:

    Here is a simple idea, raise the rates as listed in the article add in another rate for State taxes and collect all of these taxes on the Federal level and return the State’s portion back to the the original resident’s home.
    This way it makes it more difficult for high earners to leave High tax States.
    Also change the tax rate on the fund managers from 15% to current income rates.
    Tax writers please listen.

    • Texas Wahoo says:

      “This way it makes it more difficult for high earners to leave High tax States.”

      Why would we want to make it more difficult for them to leave high tax states? The whole point of the federal system is to allow the states to govern as they see fit in some fields. Let people decide based on the entire basket of goods a state provides whether they prefer to be in a high tax state or a low tax state. The federal government shouldn’t be trying to convince people to live in one state over another.

  20. Strebkr says:

    Holy politics. It really gets the comments going. I love a good Monday morning read.

  21. Donald says:

    This proposal will completely take away my incentive to become a gazillionaire. I might just as well remain poor if the gubmint is just going to take away all my money like that.

  22. billsnider says:

    I say a prayer every night that god will help me to pay the top bracket.

    Bill Snider

  23. Percy says:

    How much federal money would this raise? Anyone tried to project that? Does that even matter, since the “optics” of doing this would very much improve the political prospects of taking the bitter pill necessary to get Medicare and Social Security under control — and enable the Democrats to stop misleading people about the “fairness” of eliminating the
    Bush tax cuts” for “millionaires and billionaires” when doing that would heavily penalize those who make way less than $1 million a year (singles making $200,000 and marrieds making $250,000 — very differently situated people from those who are paid a million or more).

  24. Darrell says:

    The wealthier people, businesses, and corporations who provide goods or services don’t pay any taxes. They simply raise the price of their goods or services and pass the cost on to the consumer. However, if the cost is too high for the consumer to pay then there is no market, and the business/corporation will move offshore or to another country friendlier to the wealthy. Jobs are created by the wealthy, not the destitute.

    Raise taxes and revenue decreases. Lower taxes and revenue increases. Its the Laffer Curve. Someone should ask Obama if he is for raising taxes or if he is for increasing revenue.


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