Understanding the Tax Gap between the Wealthy and Middle Class
In today's society, the divide between the wealthy and the middle class seems to grow wider and wider each year. One of the reasons for this is the way that the wealthy are able to avoid paying the same taxes as the middle class. In this article, we will explore the difference in the way the wealthy and middle class are taxed and what is contributing to the growing tax gap between the two.
The Wealthy Get Taxed Differently
Warren Buffett, one of the wealthiest people in the world, is a prime example of how the rich avoid taxes. He runs Berkshire Hathaway, a holding company that owns multiple companies like Geico and Dairy Queen, as well as stocks in large corporations like Apple and Coca-Cola. Despite having nearly 240,000 shares of stock that are worth almost half a million dollars each, he pays much less in taxes compared to his secretary who pays double the tax rate he does. This is because the wealthy are primarily taxed on capital gains rather than income tax, which is taxed at nearly half the rate of income tax.
The Growing Tax Gap between the Wealthiest and Everyone Else
Over the last 40 years, the richest in the U.S. have seen their after-tax income increase by over 400 percent, while the middle class has only seen a rise of 50 percent. The reason for this is the difference in the way that each group makes money. Most people receive paychecks from jobs and are subject to a range of income tax from 10 to 37 percent, while the wealthy primarily amass their wealth through investments in stocks and real estate. This means that the wealthy are able to avoid paying the same tax rates as the middle class.
Examples of the Tax Gap in Action
Take Jeff Bezos for example. Despite being one of the richest men in America, he pays almost nothing in taxes on his Amazon stock. This is because it is not taxed until it is turned into actual cash. Billionaires can also take loans against their stocks so they don't have to actually sell them, meaning they don't owe any taxes. Another example is a friend of mine who recently sold some shares for a large sum of $200,000 but his taxation bill only amounted to $25,000. If he would have earned that same amount through annual wages, he would have owed more in taxes.
Conclusion
It is clear that the way that the wealthy are taxed is quite different from the way the middle class is taxed. The tax gap between the two continues to grow and it is important to understand the reasons behind this. Whether or not the tax system needs to be reformed is up for debate, but what is certain is that the current system benefits the wealthy far more than it does the middle class. So next time you hear about a billionaire not paying their fair share of taxes, now you know why.