Personal Income Taxes - Essay Example

Personal Income Taxes 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 down from 22.4% in 2009 to 20.7% in 2010. The major reason for this decrease is the low income tax rates on the investment income. Mike: Apparently, this may not be the first platform that is discussing the drop in tax rates of the rich.

This scenario is the result of the special tax rate system on investment income, introduced by the George Bush government. 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 loopholes. Jack: Jack concurred with my idea of determining tax break loopholes. A more holistic view on the topic says that the tax regulation should result in the reasonable taxation tax rates for all the income tax payers. However, the point to be disagreed is about the small tax rate on investment income.

Closing the loopholes will not solely solve the issue of lower tax rates for the super-rich. The wealthy will keep having a higher percentage of investment income as long as the tax rates on them are lower. Therefore, only an increase in the tax rates can prevent this from continuing. Even if that means lower after tax investment income for the low income group, it will help the economy in long run. Peter: The discussion has put forward various valid arguments on the personal income taxes of US.

The entire discussion focused on the core issue of tax rate disparity in the country. This is indeed the major concern of the government at present. The more the government continue with this situation, the more it is difficult to cure it. Changes in the tax rates become difficult when the income disparity grows higher. Works CitedThink Progress. “Tax Rates For America’s Wealthiest Fell In 2010.” Web. 7 Dec. 2012.