![]() To address these flaws in the tax code, the President and Congress should: The top 1 percent of households in terms of income receive the vast majority of capital gains and a large chunk of dividend income, and they are reaping most of the benefits of a new deduction, enacted in the 2017 tax-cut law, for what’s known as “pass-through” income, which the owners of partnerships and certain other businesses report on their individual tax returns. These tax breaks, which policymakers have expanded in recent years, help to widen the enormous gaps in income and wealth between the nation’s richest people and everyone else. When high-income households do pay tax on their income from their assets - such as capital gains and dividends - they pay at tax rates that are far lower than the tax rates they would pay on wages and salaries. Much of their income comes in the form of gains in the value of their stocks and other assets, and they can avoid taxes on those gains if they hold on to their assets rather than sell them. To a great degree, the income tax is essentially voluntary for the nation’s richest people.To a great degree, however, the income tax is essentially voluntary for the nation’s richest people. The main federal tax is the individual income tax, which accounts for roughly half of all federal revenue and which tens of millions of middle-class people pay throughout the year as employers withhold taxes from their paychecks. ![]() ![]() As they seek to raise more revenue, policymakers should look to increase taxes on the nation’s wealthiest households, which not only enjoy enormous tax breaks but also have done extremely well in recent decades while incomes for most others have risen much less. This growing recognition comes as policymakers need to raise substantial additional revenue to rebuild the nation’s decaying infrastructure and address glaring economic and racial inequities that COVID-19 and the deepest economic downturn since the Great Depression both highlighted and exacerbated. With a recent blockbuster story by the investigative nonprofit ProPublica, and follow-up stories in leading TV and print media, it is clearer than ever that some of the nation’s wealthiest individuals pay little or no income tax each year.
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