Wealthy Americans Cashing In On Investment Tax Cuts

by Leroy Baker, Tax-News.com, New York

07 April 2006

As Congress prepares to extend tax cuts on dividends and capital gains, a recent analysis by the New York Times has concluded, unsurprisingly, that the tax cuts on investment income have benefited wealthy Americans far more than those in lower income brackets.

Analyzing IRS data from 2003 - the most recent statistics available - the Times found that taxpayers with incomes greater than $10 million per year managed to reduce their investment tax bill by an average of $500,000 in 2003. Total tax savings for this group were said to be a little over $1 million.

The lower tax rates on investment income also meant that taxpayers with an average income of $26 million paid the same proportion of their earnings in tax as those making $200,000 to $500,000.

According to the Times, 43 percent of all the savings on investment taxes in 2003 went to those with annual incomes of $1 million or more. The analysis also showed that almost three-quarters (70 percent) of the tax savings on investment income went to the wealthiest 2 percent, equal to about 2.6 million taxpayers.

Opponents of President Bush's tax policy have cited the figures as evidence that only the wealthy have gained substantially from his tax cuts.

However, on the flip side of the coin, pro-tax cut commentators argue that since wealthy Americans hold more investments, it stands to reason that they will gain more from the investment tax cuts. They also point out that by paying less tax, they will have more money to reinvest and create more wealth and job opportunities.

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