Richest Families in U.S. Run Rings around the IRS, but Obama Administration Fights Back
The wealthiest individuals and families in America spent two decades carving away at tax laws and regulations to reduce the size of their tax burden. Much of that work was undone within a year because of changes championed by President Barack Obama.
Through the use of what The New York Times called the “income defense industry,” the richest people in the U.S. significantly cut their tax rate from the early 1990s to about 2012. They did this by employing lawyers, estate planners, lobbyists and anti-tax activists to develop new tax shelters or adjust tax rules that allowed them to keep more of their earnings.
The reduction was startling. “Two decades ago, when Bill Clinton was elected president, the 400 highest-earning taxpayers in America paid nearly 27 percent of their income in federal taxes,” Noam Scheiber and Patricia Cohen wrote at the Times. “By 2012, when President Obama was re-elected, that figure had fallen to less than 17 percent.”
The year 2012 was when Obama started to counter some of the tax schemes that had been put into place. The American Taxpayer Relief Act of 2012 signed by Obama did extend tax cuts implemented under George W. Bush, but it also allowed certain breaks for people making over $500,000 to expire.
Additionally, Obama’s signature legislative achievement, the Affordable Care Act (pdf), imposed new taxes on the wealthy, “applying to both regular income and income from capital gains, like the profit from appreciated stock,” according to the Times’ Josh Barro. Thanks to those two countermeasures, the tax rates for the 400 wealthiest taxpayers rose sharply to 22.9% in 2013.
Part of the Obama administration’s strategy was that instead of trying to plug loopholes that allowed high earners to put income into shelters, the tax rates for sheltered income were changed to come closer to the rate for regular income, according to the Times.
To Learn More:
For the Wealthiest, a Private Tax System That Saves Them Billions (by Noam Scheiber and Patricia Cohen, New York Times)
Thanks, Obama: Highest Earners’ Tax Rates Rose Sharply in 2013 (by Josh Barro, New York Times)
U.S. Government Redistributes Wealth…to the Rich (by Matt Bewig, AllGov)
Loophole in Obama Tax the Rich Plan Would Spare Many Sort-Of Rich (by Matt Bewig, AllGov)
Taxing the Top 25 Hedge Fund Managers Like Average Citizens Would Cut Deficit by $44 Billion (by Noel Brinkerhoff, AllGov)
15,000 Super Rich Families Claim 6% of National Income (by Noel Brinkerhoff, AllGov)
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