Do rich people pay taxes?

My wife and I disagree on this. One of us thinks, generally speaking, that rich people pay a lot of taxes and one of us thinks the rich pay accountants to find ways where they don't pay any taxes-so, who is right? Any rich people on here? What % of your income goes to income tax?

It's both.

They try to pay as little in taxes just like everyone else.

Not nearly enough. And now, a lot less than that. Worse part is that they are tanking the economy

Yeah, rich people, spill the beans.  You payin'?

Richest person I know is Uncle Sam.  Greediest person I know is Uncle Sam.  Meanest person I know is Uncle Sam.  Now if he'd just stop taxing us there'd be a whole lot less money in politics too. 

Here's the entrance to the rabbit hole. List of contents right column.

Adam Carolla says he is rich and when he came to town for a comedy show, he showed his tax return on the big screen. It revealed that he made $1,000,000/year and paid just north of $400,000 in income taxes. That was before his podcast really took off so I'm sure he makes double that now. I'm in Canada and am middle to upper middle class in household income and we pay over 40% income tax and another 12% sales tax on everything, and I think we are way overtaxed considering out terrible healthcare and infrastructure problems.

The difference is this:

What you pay initially in taxes, can be quite a bit different to what you end up with at the end of the year when you do your taxes.

So those well off who take the time to pay people to work the loopholes for them, can essentially receive a huge tax return at the end of the year, let alone pay a smaller percentage into it.

One way is to essentially put all of their assets in a corporation’s name, make their family members “employees” and pay themselves a lower wage or stipend with everything possible written off as a company expense.

Having assets and the company “HQ” located where the taxes are beneficial doesn’t hurt either.  Hiding cash in offshore accounts where they can’t easily be traced, etc.

It’s one of the reasons so many Californians are moving to Arizona, they get Cali’s weather and lowered taxes instead of having to deal with Oregon’s weather, etc. and no funky accounting hoops to jump through.

If they were really smarmy, they could open their own church, get non-profit status and make everyone members of the church board, etc.  Income would be donations to the church, assets would be owned by the church, etc.

So yeah, if you want to play the game, you can make it work for you, some do, some don’t.  Celebrities are often some of the worst at managing their money, so Corolla’s situation isn’t surprising, really.

Look at Wesley Snipes for another example.

Little of column A, little of column B. 

As an example, My parents aren't what I'd call rich--they can pay cash for a new car easily, but they're also retired. They have a vacation home they paid cash for that was 90% furnished by hardcore estate saleing--including the dishes and pots and pans. Things like that. 

My dad probably pays more in taxes than I make in a year, as a retired person. He also keeps every receipt and itemizes everything. In his mind, he is way overtaxed--not because it is a lot of money, but because he thinks it isn't being used well. 

He also is squeaky clean. Would never have anything questionable on an audit, so he is likely leaving some money on the table. 

As an aside, it's also hard to easily quantify. 90% of my material wealth is in ROTH retirement accounts. If I continue with that strategy, I'll be wealthy and not taxed at all. 

The rich most certainly pay more taxes. We have a progressive tax in this country, the more you make, the more you are taxed. There is some truth to the rich being able to hire accountants to follow the existing tax law (don't call them loopholes- these tax laws were not written on accident.) But there are also tax deductions that diminish and disappear as you earn more, middle class can claim some deductions that the rich can't. Dollar wise, the rich most certainly pay more tax dollars- they actually pay most of it. I believe The top 20% pay more than half of the tax dollars. They do not always pay the highest percentage, which is where some people mistakenly claim the rich pay less. 

Oh, boy, I don't see this thread ending well.

Appleseed said:

Oh, boy, I don't see this thread ending well.

... and the experts haven't even weighed in yet. 

In reply to mtn :

My mother is similar (lacking the vacation home). 

One of the potential hang-ups is most "rich" people don't have income in the same way working folks do, so the progressive tax structure doesn't apply.  Much of their income is from capital gains through investments, which is taxed at 15%.

Really rich folks tend to have little real money and have it put in sheltered trusts and whatnot and a lot of what they "own" is actually owned by these trusts. 

That said, they still tend to pay a lot in taxes - usually millions of dollars each year - but as a percentage of their "income" it can seem rather low.

According to the WSJ......

https://www.wsj.com/amp/articles/top-20-of-americans-will-pay-87-of-income-tax-1523007001

Both. 

I know lots of poorer people who never file a return at all. 

Ian F said:

In reply to mtn :

My mother is similar (lacking the vacation home). 

One of the potential hang-ups is most "rich" people don't have income in the same way working folks do, so the progressive tax structure doesn't apply.  Much of their income is from capital gains through investments, which is taxed at 15%.

Really rich folks tend to have little real money and have it put in sheltered trusts and whatnot and a lot of what they "own" is actually owned by these trusts. 

That said, they still tend to pay a lot in taxes - usually millions of dollars each year - but as a percentage of their "income" it can seem rather low.

This is how it is. The idea with most high worth individuals is to figure out how to get your money as long term capital gains rather than  ordinary income. They still pay a lot of money, but they also pay less on a percentage rate than seems "fair". Also a lot of what rich people make on paper stays on paper pushing the taxation of those gains to the future. You only pay taxes on realized gains, so if you leave it in the market without selling there is no tax right now. Lots of rules to follow. 

First we have to define 'rich'. As mentioned, there are people with a high income, and people with accumulated wealth, and combinations of the two.

There are 'only' 11 million millionaires in the US... out of 325 million people. 

$100k salary is probably the line between upper and middle classes here in KY...I'd say anyone from 100k-250k is paying lots of taxes.

lrrs said:

According to the WSJ......

 

https://www.wsj.com/amp/articles/top-20-of-americans-will-pay-87-of-income-tax-1523007001

According to that WSJ article, 77 million households in the bottom 2 tiers pay NEGATIVE taxes (they receive money, as opposed to paying it)

Its all in how you spin it. 

In reply to loosecannon : Most of my working life I made well into 6 figures a year.  Now days that doesn’t sound like much but back then it was a really nice income especially when you added my late wife’s income and benefits. 

It allowed me to live in the richest zip code in Minnesota. And among the higher ones in the nation. 

On average we paid 2% of our income to federal income taxes and 3% to state income taxes.   I did everything by the book because my taxes were prepared by a former career IRS agent and his wife( ( who also had a career with the IRS)  

The trick is you need to listen to people like that who really understand the rules.  ( and most important understand the legal precedents that allow certain deductions not commonly known or used) 

77,000 + pages in the  tax code and most people who use the tax code work off 35-40 pages.  ( (including computer programs like Turbo Tax) 

Only  the $1000 an hour tax lawyers really know and understand legal precedents 

SVreX said:

lrrs said:

According to the WSJ......

 

https://www.wsj.com/amp/articles/top-20-of-americans-will-pay-87-of-income-tax-1523007001

According to that WSJ article, 77 million households in the bottom 2 tiers pay NEGATIVE taxes (they receive money, as opposed to paying it)

Its all in how you spin it. 

Please read that statement carefully.  That doesn’t  say what you think it does.   As Warren Buffet says he could pay zero tax if he choose to.  ( and he  explained the rule that would allow him to)  

so let’s assume you make 800 million dollars this year.  If you do your taxes correctly you can qualify for food stamps or welfare!!  Technically you aren’t in the top percentage.  

What that actually says is of those who paid taxes last year the top percent paid ———

Now that doesn’t count the perks and benefits. Things like private use of the Corporate jet.  What would it cost you to take your family to a first class all expense paid vacation to France to watch the 24 hours of LeMans?  

Well to the top 1-3%,  nothing!!  You’d simply conduct a business meeting for long enough to qualify and the whole thing is a business expense. Not the cheap $1800 an hour one. The $5-7,000 an hour one to make it non stop. 

A suite for you plus one for each of your kids. Plus someone to watch them and keep them entertained ( and safe) 5 star meals. Etc etc etc. blah blah blah!! 

Ask me when I am rich. 

Boost_Crazy said:

The rich most certainly pay more taxes. We have a progressive tax in this country, the more you make, the more you are taxed. There is some truth to the rich being able to hire accountants to follow the existing tax law (don't call them loopholes- these tax laws were not written on accident.) But there are also tax deductions that diminish and disappear as you earn more, middle class can claim some deductions that the rich can't. Dollar wise, the rich most certainly pay more tax dollars- they actually pay most of it. I believe The top 20% pay more than half of the tax dollars. They do not always pay the highest percentage, which is where some people mistakenly claim the rich pay less. 

That's true for earned income.  It's not true for unearned income.  Regardless of your income, if you have capitol gains that you've owned for over 1 year, you only pay 15% of that gain in taxes.  

So if you made $10M running a company, you would pay the highest progressive rate.  If you made $10M in selling assets, you only pay 15% on that- which is a lower rate than most people start with.  And if you ask me, that's the core problem with our structure.  

Ignore the whole fairness issue- look at how it impacts the economy- instead working an industry making stuff (which, over time, is how true wealth is generated) the structure encourages just buying and selling stuff for value.  IMHO, a CEO of a company should be more valuable to the country than a person who buys something and sells it a year later.

edit- the best source to look at the taxed rates based on reported income- go to IRS.GOV and see the data.  You will see the peak actual rate is in the mid $100k range, and then it goes back down again as income raises.  

There are different kinds of "rich". Some are "rich" based on a high annual income. Some are "rich" because of total assets. One of those groups pays a lot in taxes while the other doesn't necessarily pay as much.

There are plenty of retired people with millions of dollars worth of assets that have very little earned income (because no job and tax advantaged accounts) and therefore pay very little income tax vs a 'middle class' family that brings in 6 figures of earned income but has less in assets.

This is why investing as much as possible into tax advantaged accounts, as early as possible in life, is so powerful. It reduces your annual tax burden and simultaneously helps build long term wealth. Those higher earners that spend everything they make learn this the hard way.

There is so much back and forth just like any subject. 

Here is another way to look at it, the US government spent almost 13000 dollars for every citizen in 2016 from what I could find.  

Did you pay more than that, then you lost out, less, you made out. Me?  I am not rich by any means and I am right about there just below the 13k, only because I did the rich person thing and funded my 401k and a ira, defuring some taxes, taxes I will end up paying later. 

These figures were for federal government only. 

SVreX said:

Both. 

I know lots of poorer people who never file a return at all. 

They are foolish. Look up earned income tax credit.  

Interesting anecdote:

This guy owes the IRS One Billion Dollars.

If you look at the IRS forms, you'll see that the IRS cannot accept checks of $100M or greater.  So this guy has to write 11 check to Uncle Sam to cover his 2017 tax bill.