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06 February 2012

Are the Rich Not Paying a Fair Tax Rate?

Richard Rahn of the Cato Institute recently wrote an op-ed about President Obama's lack of understanding of tax rates.  It's worth a read, but this excerpt was particularly interesting:


President Obama keeps demanding that the rich pay more because “it is only fair.” In his State of Union address, he said millionaires should pay a minimum of 30 percent of their income in taxes. The 30 percent number seems to have come from divine inspiration rather than an exercise in logic.
In fact, the very rich pay far more in taxes than the relatively low nominal numbers they report on their tax returns. Many very wealthy people obtain most of their income from dividends, capital gains and interest on tax-free state and municipal bonds. The actual tax rate Mitt Romney, Warren Buffet and most other wealthy people pay on dividends, when correctly calculated, is about 52 percent, as reported by the Organization for Economic Cooperation and Development (OECD), which includes the federal and state corporate-level-profits tax burden, plus federal and state taxes on dividends. My Cato colleague, Chris Edwards, who prepared the accompanying chart, notes: “Just about every industrial country provides relief for the double taxation of corporate equity, either by having a lower personal rate on dividends, a personal tax credit for dividends or a lower corporate-level tax. Despite the 2003 dividend tax cut, the overall U.S. rate of dividends... is still the fourth-highest among the 34 high-income nations of the OECD.”

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