Tag Archives: Millionaires

France’s 75% Tax on Millionaires is Not What You Think

Almost two years ago now, there was a big hullabaloo because France proposed a 75% tax on millionaires. Some folks were really upset that millionaires were going to have to pay 75% of what they earned in a year for taxes. WRONG. This is not true. In no country (that I’ve ever seen), do taxes work this way. One of the words you often hear — progressive. Another one — marginal. Confused?

I’ve been thinking about this over the last few days. Since it was announced that the President of France was getting approval for the 75% tax, I’ve been listening to what some folks have been saying about this tax. It reminds me of what happened last year (around this time) when there was talk of extending the Bush tax cuts in the US. People were confusing or not really understanding just how the tax system works.

Essentially, taxes are the same for everyone. How?

There was an article in the New York Times a couple of years ago where there was someone in the US who was worried about making a few extra thousand bucks because she didn’t want to be taxed at the higher rate. What? That’s right. She thought that because she made (fictitious numbers) $100,000 instead of $98,000, she was going to have to pay more taxes on all of her $100,000. If you know anything about taxes, you know that this is not true.

When you pay taxes, you pay the same as everyone else. That is, if someone earns $35,000/year and you earn $50,000/year, you both pay the same amount of taxes (up to) $35,000/year. However, you will also have to pay taxes on that $15,000 difference. Depending on the country’s laws, that might be the same rate. Another word for this is tax brackets.

Remember earlier when I mentioned the words marginal and progressive? This system of paying similar amounts of money across people is called marginal or progressive taxes. It’s important that it’s conducted in this manner, otherwise people would be incentivized to do what that lady in the NYT article was talking about — not earn extra money when you’re near a new bracket for fear of having to pay a different rate on all of your money. Of course, we know that this isn’t true.

Something I don’t understand is how many people simply don’t understand this. There are some things in life that are important and worth knowing and I’d think that knowing how/why you pay your taxes would be one of them. Maybe we need to do a better job of educating folks in school about this idea of marginal/progressive taxes. Maybe we need to change the name, I don’t know. Until then, I’ll keep writing posts like this to remind you just how tax systems work.

By the way — I should note that I’m not arguing for/against the 75% tax that Francois Hollande has just had approved, I’m simply trying to explain what it is, so that when people do debate the merits, they’ll actually be talking about the same thing.

US Congress: 48% Millionaires, US Population: 2.85% Millionaires

I recently saw an article in The Atlantic with the title: Does the Rise of the Super-Wealthy Require New Global Rules? It’s a provocative question based on a book by Chrystia Freeland, Plutocrats. I highly recommend taking the time to read it! Anyway, while the article was good, there was something near the beginning that caught my eye and made me think:

When the 113th Congress opened in January, the number of millionaires in its ranks rose to 257 out of 535, or just over 48 percent.

My first thought — that’s a lot of millionaires in Congress, isn’t it? Forty-eight percent! Then I thought, that percentage probably doesn’t hold for the whole population of the US. Meaning, 48% of the United States probably isn’t made up of millionaires. In fact, it’s not. A study found that there are 9 million millionaires in the US. If we use the clock on the US Census Bureau, we can say that there are approximately 316 million people living in the US. So, if we divide 316 million by 9 million, we get a percentage of… 2.85%. Meaning, 2.85% of the US are millionaires. And yet, 48% of Congress are millionaires. Is something wrong here?

The US has a representative democracy. This means that a group of elected officials represent the people who elected them. Maybe it’s just me, but isn’t the keyword here representative? Do we really think that a Congress in which 48% of the body are millionaires can accurately represent a population in which only 2.85% are millionaires?

If you’re an American, this is certainly something worth thinking about today as you enjoy your holiday.

PS: Happy Independency Day!

Taxes are the Same for Everyone: Marginal Rates vs. Millionaires and Billionaires

I was watching some of the coverage of the ongoing fiscal cliff mess and I heard one of the people being interviewed talking about how the “Bush tax cuts” are going to be extended for 98% of Americans. This. Is. So. Wrong. I’d like to assume that the people on TV informing the nation know that they’re wrong or that they’re misleading, but I don’t know — maybe they don’t know. Regardless, they’re unintentionally perpetuating myths that have long since been debunked.

To flesh this out: it’s not that once you make a certain amount of income, your rate is completely different for all the money you make, NO! The USA has marginal tax rates, so the first $250,000 you make will get taxed at one rate and any money you make above that gets taxed at a different rate. So, when pundits or talking heads or anyone talking about this fiscal cliff mess tells you that the Bush tax cuts are being extended for 98% of Americans (or any number less than 100%) — they’re wrong.