Thursday, January 13, 2011

Millionaires Pay Less in Taxes

Millionaires Pay less in Taxes

Taxes are to punish rich and giving that money for the development of the services and infrastructure that can serve poor and middle class. This was the original philosophy behind applying the taxation on high income producer people from all around the world.

But well, the reality is that, Rich pay less in taxes than poor and middle class. This is because they earn in Businesses and Investments. And the Income from Investments and Businesses is either tax free or very less taxable.

According to one survey, the typical millionaire in USA and of course worldwide has a total annual realized income is less than 7 percent of his total wealth. This means that if someone’s Net Worth is $ 1 Million than his annual realized income is less than $ 70,000. And rest of the money he earns in Businesses and Investments in the form of Capital Gains, Dividends and Bonuses.

Thus, all of these Income are either totally tax free (Capital Gains) or very less taxable (Dividends) or even Tax Deductible (Business Expenses). So now you will ask that, who pays these billions and trillions of dollars of tax? Well, these are the high Income but low net worth Middle Class people.

High Income professionals (Doctors, Lawyers, Actors) sometimes pay as high as 70% of tax of their total net worth. This is because their realized income is much more. Take the Example of Doctors. Some doctors earn $ 2,00,000 every year and pay $ 80,000 in tax and their Net worth is just $ 2,00,000. So in comparison to their net worth they pay 40% Tax in comparison of their total wealth.

And to fuel their high status life style, they need to realize more income every year. So remember, Rich pay less in taxes while it is the high income middle class people who pay more in taxes.

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