There are many tax deductions that phase out depending on your income. I’m not advocating that the income restrictions be removed, but rather wanted to provide this list to show that U.S. tax laws do not always benefit of the rich. In fact, for people like me who earn a lot, but have not yet accumulated a significant amount of wealth, these tax laws prohibit me from accumulating wealth as fast as a Warren Buffett or Mitt Romney who can benefit from tax loopholes on their already accumulated wealth.
It’s these deductions and more that allow 47% of Americans to pay a $0.00 federal tax bill. I think there is an interesting civic philosophy question about whether it’s preferable that 47 percent of the country votes on issues of defense spending, education department policy and other functions of government that are funded by federal income taxes, while they only contribute to excise and payroll taxes. They also benefit from the programs, roads, bridges, education that is paid for by taxes.
Current deductions not available to the 1% include (married filing jointly):
- Earned income tax credit (phaseout end $49,078 with 3 children)
- Child Tax Credit (phaseout begins $110,000)
- Child and Dependent Care Credit (phaseout ends $43,000)
- Adoption Credit (phaseout ends $225,220)
- American Opportunity Credit (phaseout ends $182,000)
- Hope Credit (phaseout ends $122,000)
- Lifetime Learning Credit (phaseout ends $122,000)
- Education tuition and fees deduction (phaseout ends $160,000)
- Coverdell Education Savings Account (phaseout ends $220,000)
- Student Loan Interest Deduction (phaseout ends $150,000)
- Education Savings Bond Program (phaseout ends $135,100)
- Savers Credit (phaseout ends $56,500)
- Roth IRA contribution limits (phaseout ends $179,000)
- Traditional IRA contribution (phaseout ends $110,000)
- Deductible IRA contribution (phaseout ends $179,000)
- Taxation of Social Security benefits (phaseout ends $44,000)
- Personal Exemption in 2013 (phaseout ends $372,700)
Detailed information on these deductions can be found on the Tax Policy Center website. I know some may say that there are other tax benefits to the rich that otherwise are not available to anyone else, such as the capital gains tax, but for 1 percenters like my wife and I, we don’t make any money on capital gains. We go to work on a daily basis, make a fair wage, and pay income taxes like everyone else. We also can’t take advantage of carried interest like many hedge fund managers. We also can’t take advantage of accelerated depreciation because we don’t own a company…we work for a company. Whether everyone has to pay something or we remove certain unfair tax deductions on the rich, the argument doesn’t come down to how to make the tax system fair for the 99%, but how to make it fair and equitable for the 100%.
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