By Elizabeth Anne Hull
Tax season is a good time to assess your net worth.
Recently, I read that over half of the members of Congress of both houses are millionaires, which implies that they’re rich and so cannot possibly understand the problems of the average person, much less those living below the poverty line.
Perhaps. I’m not quite ready to believe that of all of them, because it depends on how you define millionaire. High net worth is not the same thing as high annual income.
According to the traditional definition, you’re a millionaire if you have a net worth of $1,000,000 or more — not including the value of your home. More recently, however, that term has been used to describe $1 million in annual income, which makes more sense today.
Annual income often is a great deal less than $1 million for “millionaires” whose net worth is above that figure. A net worth of $1 million isn’t far out of reach of upper middle-income Americans (as shrinking as that group is). Those who are lucky enough to hang on to a good job, who save regularly, invest wisely, live frugally, don’t run up their credit, live in a house that’s much less valuable than they could afford, drive a car for as long as they can, and teach their children to have modest tastes as well, may amass at least $1 million, maybe even several millions in net worth, while having an income under $100,000 annually.
Taxes on that income are divided in two different ways: Taxes as a percentage of overall income, and types of tax per types of income.
For example, FICA taxes — the ones that fund Social Security for the elderly and disabled — are paid by every wage earner (unless they’re covered by a state pension system that usually costs those individuals more than the tax would). Minimum-wage earners pay the highest percentage of their earnings for FICA. Those making over $113,000 per year don’t pay FICA on any amount above that, and they pay it only on earned income, not on capital gains or interest income, which for people in those brackets may be considerable. Thus, while everyone who earns any wages at all pays FICA, those taxes are definitely not flat; they are regressive: the percentage paid by people who earn $1 million a year is definitely less than the percentage paid by minimum-wage earners.
The next most common type of tax is income taxes, which are progressive, to an extent. That is, if all or most of your income comes from wages or salaries, you’ll pay a gradually higher tax the higher your tax bracket is, up to a current cap of 36 percent for the highest earners. But of course, there are loopholes and tax shelters and other ways that the rich can pay less.
It’s likely that you’ll pay other taxes as well, a few at a considerably higher rate, more at a lower rate, such as capital gains. And if you are lucky enough to be a property owner, you will also pay real-estate taxes (although landlords pass along these costs to tenants), which can vary widely across the country.
Most states also have a state income tax. Only a few states don’t have sales taxes, another regressive tax (and no tax at all to companies, which can deduct them as a cost of doing business).
Hence, the aphorism that nothing is inevitable except death and taxes.
Trying to agree on a fair assessment of taxes would be difficult enough if we only had to deal with humans, but in the 2010 Citizens United vs. Federal Election Commission case, the U.S. Supreme Court, in a 5/4 split decision along party lines, ruled that corporations are people, and that money is equivalent to speech. Thus under the first amendment to the U.S. Constitution, corporations have the right to donate — in secret through 501(c)(4) PACs — to lobbying efforts and not pay taxes on that income.
(The Supreme Court has been silent about the death penalty or even prison for corporate officers when the corporations commit crimes, including causing the deaths of people. They can be sued, but the corporations — or their insurance companies — can reach a monetary “settlement” out of court when they believe they’ll lose or, as they claim, just to avoid the time and cost of defending their innocence or nonculpability.)
Thus we have some very large, mega-billion-dollar corporations paying virtually no taxes, while humans in this country, even the poorest, all pay taxes, one way or another.
Somehow, being a simple millionaire (by the old definition) doesn’t seem to be much of a big deal these days, does it?