It matters who wins.
Data released by the I.R.S. on Wednesday [last week] shows that tax rates on the income of America’s 400 wealthiest taxpayers rose sharply to 22.9 percent in 2013, erasing a majority of the last two decades’ decline in their effective tax rate.
As described in an article in The New York Times on Wednesday, tax rates on America’s 400 wealthiest taxpayers fell sharply from the late 1990s through 2012, when their average effective income tax rate fell to 16.7 percent from 26.4 percent.
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The spike in the wealthiest people’s tax rates was mostly achieved the second way, and mostly through initiatives from President Obama. Two laws that he championed became effective in 2013, raising tax rates on high earners and limiting the value of tax deductions they are entitled to take.
One was the American Taxpayer Relief Act of 2012, which extended the so-called Bush tax cuts for most taxpayers, but allowed certain breaks for people making over $500,000 to expire. The other was the Affordable Care Act, which imposed new taxes on high earners, applying to both regular income and income from capital gains, like the profit from appreciated stock.
Put together, these two laws raised the maximum tax rate on regular income by more than five points, and on capital income (like capital gains and dividends) by almost nine points. The Relief Act also led to the restoration of rules, repealed under President George W. Bush, that limit the value of tax deductions (like those for mortgage interest and state income taxes paid) for people with high incomes.
It’s still far short of what it should be, but the direction has changed for the better.
Thanks, Obama. Thanks, Democrats. This matters.