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Personal Income Taxes - Essay Example

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Tom: The first issue when it comes to personal income taxes will be the major disparity between effective tax rates for the rich and poor in the country. Data and reports from the Internal Revenue Service (IRS) shows that the effective tax rate of wealthy American’s have come…
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Personal Income Taxes
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Personal Income Taxes

Download file to see previous pages... The rich taxpayers are seem to be reporting almost 48.5% of their total income as capital gains and dividends, effectively getting 48.5% of their income taxed at extremely lower rate of 15% compared to that of the low income people. The trend now is that such wealthy taxpayers with more than $10 million continue to report huge increase in their income and get taxed at extremely lower rates. Legendry investor Warren Buffet has complained that he pays much lower tax rates than his secretary.
John: I should agree with Mike on this point. Studies have shown that one of the major reasons for income inequality in US is such special tax rates on investment income. While the percentage of capital income is as high as 50% for some of the wealthy, it is as low as 2% for people below the income level of $200,000. In fact, Mitt Romney is reported to have close to $14 million income and the effective tax rate is seemed to be as low as 13.5%. All these instances point to the fact that current tax system just keeps accelerating the income disparity in US. A fix to this is indispensable in order to check this inequality from spreading. One option that the government can consider is to increase the tax rates on investment income.
I: Taking it on from John, I should say that is already high time that the government should find a fix for this issue. Effectively, only a higher tax rate can curb the huge tax rate disparity in US. Regarding John’s note on increasing the tax rates on investment income, I should say that it will again adversely affect the small taxpayers who have considerably small percentage of investment income. Increase in the tax rate on such income would effectively leave the small taxpayers with fewer after tax profits. Therefore, a more ideal choice would be to determine the tax break loopholes that allow the rich to lower their income tax percentage and close such ...Download file to see next pagesRead More
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