Thursday, June 21, 2007

How do I get into the 15% tax bracket?

Next time you're worried about Paris Hilton's tax rate going up, remember, she probably already pays less than you do:

At the heart of the newest proposal is an attempt to bar private equity and hedge fund operators from a longstanding, but little understood, practice that has allowed them to pay a lower capital gains rate of 15 percent instead of the ordinary top income tax rate of 35 percent on their performance fees, which typically represent most of their annual income

For comparison, the typical American is paying 20-25% of their income in federal taxes after deductions. The rich technically pay more, but only on earned income, and the stories of wealthy people paying 50%, 70% or 90% are simply not true today.

And if their income comes from capital gains, or inheritance, they pay far less than the average Joe.

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