The American Tax Code How Our Government s The Wealthy

The American Tax Code: How Our Government Subsidizes the Wealthy Tax deductions, credits, special rates and homeowner deductions will allow the richest 20 percent of Americans to receive more than half of the $900 billion in tax benefits in 2013 (CBO). America does not treat all sources of earnings equally. Currently, the American tax code’s approach to income tax progressivity is focused on economic models in which labor is the only source of income. Since the upper class often accumulates large quantities of wealth through assets and capital, the tax code lacks progressivity. With the omission of the refundable earned income tax credit, the American tax code perpetuates inequality by offering tax benefits that solely benefit the†¦show more content†¦A study by economist Thomas Hungerford of the Economic Policy Institute found that, â€Å"By far, the largest contributor to increasing income inequality (regardless of income inequality measure) was changes in income from capital gains and dividends† (HUNGERFORD). In order to comprehend the effects of reducing the capital gains tax rate, the Internal Revenue Service offers data on the top 400 earners average tax rates from the year 1992 till 2009. The very top 400 earners received an average tax rate of 26.38 percent in 1992, and it then dropped to 19.91 percent by the year 2009. When the date for the average tax rate for top 400 earners is graphed against the maximum capital gains rate, the relationship is nearly perfect with 95 percent of the changes in the average tax rate being accounted for by capital gains tax cuts. The data clearly shows that by lowering the capital gains tax, America is significantly increasing the wealth of the top earners and widening the wealth inequality gap. A common misconception that often prevents significant policy reform on this issue is the myth that decreasing tax rates on capital gains will dramatically help the economy. Since the 1950’s capital gains have been taxed at lower rates than income, and has been billed as a way to fuel economic growth (CNN). However, although a lower rate may spur risk-taking investments, it doesn’t have a proven correlation with economic growth. 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