Top 1/10th of 1% make 60% of all Capital Gains Earnings

It should come as no surprise to those who are following the Occupy movements and American wage disparity that the top one-tenth of one percent wealthiest people earn 60% of the capital gains.

Capital gains are key as to why there is such pronounce income disparity in America. It’s the “winner takes all” mantra of our economic system. To even out earning power in the U.S, a 15% capital gains tax is needed—now. And so we should.

To understand why individuals and corporations earn so much on capital gains, we have to take a perhaps boring—but enlightening—trip in the underpinnings of economic disparity. This basic understanding of capital gains earnings explains why the rich don’t pay taxes like the rest of us. Changed legislation may help the disparity.

Individuals and corporations pay income tax on the net total of all their capital gains just as they do on other sorts of income. [But] capital gains are generally taxed at a preferential rate in comparison to ordinary income, which is intended to provide incentives for investors to make capital investments, fund entrepreneurial activity, and compensate for inflation and the corporate income tax.

Think “trickle down.”

Short-term capital gains investments [one year or less before sale] are taxed at the ordinary income tax rate. Long-term capital gains are taxed at a lower rate.

In 2003, the capital gains rate was reduced to 15%. Individuals in the lowest two income tax brackets paid 5%. The reduced 15% tax rate on… long term capital gains was scheduled to expire in 2008. George Bush extend the Tax Increase Prevention and Reconciliation Act of 2005 signed into law by President George W. Bush, which extended capital gains tax incentive through 2012.

In late 2010, Congress approved and President Obama signed the bill. Please note that in the coming years, this disparity will change somewhat according to proposed legislation—but that may not be so if conservatives control the executive and administrative branches of government.

• After 2012, dividends will be taxed at the taxpayer’s ordinary income tax rate, regardless of his or her tax bracket.

• After 2012, the qualified five-year 18% capital gains rate (8% for taxpayers in the 15% tax bracket) will be reinstated.

President Obama seems to be making strides towards overturning the unfair advantage the top .1% have in terms of capital gains. Nevertheless, wealth disparity is still directly attributable to capital gains. And the argument that the more money one makes, the more taxes they should pay is just plain common sense.

The top .1% (please remember, not 1%), which comprises 315 individuals, make half of all their money on share or property sales after one year. Even Forbes notes that income and wealth disparities become even more absurdly pro-.1%, because capital gains provide 60% earnings for the top one-tenth of the top one percent

The Bush tax reduction on capital gains and dividend income in 2003 was the cutting edge policy that created the immense increase in corporate executives’, Wall Streets’, and other entrepreneurs’ net worth.

The tax reduction from 20% to 15% continued the step-by-step tradition of cutting capital gains earnings to “create more wealth.” Here is your short overview on the fallacy of “trickle down” economics which affects even the top .9%, who pay more taxes than the top .1%.

In 1978, stock market and economic stagnation, capital gains tax was 28% . Enter Reagan in 1981: the capital gains tax was reduced to 20%, then raised back to 28% in 1987, on the eve of the October ¹⁹ 232% market Crash.

Clinton reduced capital gains taxes back to 20%, which induced hedge funds and private equity. Those who invested in these areas saw the most rapid rise in their earnings—these are the top 1%

A Forbes opinion columnist notes:

Make no mistake; the battle that is to be fought over the coming attempt to reverse this reduction in capital gains will be bloody and intense. The facts are clear according to the Congressional Budget Office. More than 80% of the increase in income inequality was the result of an increase in the share of household income from capital gains. In fact, you can go so far as to claim that Capital Gains income is the most unevenly distributed—and volatile—source of household income, according to Laura D’Andrea Tyson, UC Berkeley business professor and former chair of Clinton’s Council of Economic Advisers under President Clinton.

This is how obscenely wealth Plutocrats obtained the largest share of national income—25%. This figure is greater than the wealthy in any other industrialized nation from 1979 to 2005. In the light of rampant unemployment, capital gains must become a key issue in the national debate and the presidential election. This recognition is already a key issue of the Occupy movement.

The late Superior Court Justice Louis Brandeis warned We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both

If the government does not create a higher and fairer capital gains tax to the wealthiest Americans, expect social unrest to increase.

Mad Mike’s America thanks Forbes and Wikipedia for the data provided on capital gains income.

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