Taxing The American Middle Class and Rich – Fair or Not?

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President Obama has released his latest budget and one of it’s the hallmarks has been an increase in taxes on the “rich”. This would be done by reinstating 10-year-old income tax rates of 36% and 39.6% for single Americans earning more than $200,000 and joint filers making more than $250,000 (currently 33% and 35%). In addition the President has proposed that the long-term capital gains tax rate would increase to 20%, up from 15% currently. The provision would also reinstate so-called phaseouts for high-income households, which would essentially reduce their eligibility for a host of personal exemptions. This would cap at 28% the rate at which high-income households can itemize their deductions, making them less valuable to a high-income tax filer. However critics argue that many households make over $200,000 (e.g. those who live in large metro’s or successful small business owners), and are far from rich, would be unfairly hit with these taxes.

However, the administration has hit back and said that in the proposed budget there are $143.4 billion in new tax cuts for working individuals. It also calls for a one-year extension of the making work pay stimulus tax credit that adds a few dollars to workers’ paychecks every pay period. The extension is estimated to boost the deficit by $61.2 billion over 10 years. Republicans in congress have argued that the proposed tax relief over the next 10 years for individuals, families, and businesses is mostly targeted and limited, often to people who don’t have to pay any taxes.

What is America’s Middle Class?

According to Internal Revenue Service data, 4.5 million U.S. tax returns out of 143 million filed reported adjusted gross income in excess of $200,000 in 2007, the last year for which data was available. However does this mean that everyone above this is “rich?” CNN brings us an excellent video looking at the American middle class and the different perspective people have on what is middle class.   

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5 Comments on "Taxing The American Middle Class and Rich – Fair or Not?"


Bruce Jacobs
Wednesday 5:02 pm

Correction: The Middle Class hold 15% or all net worth, or $8 trillion.

Bruce Jacobs
Wednesday 4:59 pm

The true measure of “upper, middle, and lower” class is “net worth.” Here are the numbers:

Upper Class (Top 20 percent) – Hold 85 % of all net worth, or $47 trillion.
Middle Class (Next 30 percent) – Hold 15 % of all net worth, or $15 trillion.
Lower Class (Bottom 50 percent) – Hold zero net worth.
data from Flow of Funds Report, Federal Reserve, 2011

These values compound at 7.2% per year, or double every 10 years. Example: The top 20 percent net worth will grow to $94 trillion in 2021; to $188 trillion in 2031; to $376 trillion in 2041; to $752 trillion in 2051; and to $1.5 quadrillion in 2061.

[…] doesn’t have an official definition for income or wealth classifications that make up middle class, middle income, rich, or upper income. […]

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[…] contrast, if you’re a low or middle income earner, it’s much more difficult to reduce your tax burden. Of course most people don’t like […]

[…] benefit American families earning less than $250,000 a year, while allowing tax rate reductions for high-income earners to lapse. This means boosts in the top marginal rates from 33% and 35% to 36% and 39.6% […]

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