Our laws favor the wealthy. Republicans promote policy that furthers the advantages the wealthy enjoy. Democrats make some effort to level the playing field, so I’m a Democrat.
Growing up, I believed we each got what we earned. I worked to finish college, used military benefits and took out student loans. I faced the same economic challenges many Americans face. However, as a physician, I have earned higher wages than many other workers. This experience taught me valuable lessons first hand regarding wealth.
First I learned about taxes on wages. For wage income, we pay both payroll taxes (Social Security and Medicare) and income taxes. Income taxes have a top rate of 37%. The Social Security portion of the payroll tax is 12.4%. Interestingly, social security taxes only apply to income below $128,400. This means most working class people pay social security taxes on 100% of their income while higher income earners do not.
Next, I learned about taxes on investments. Compared to income from wages, investment income is essentially free money. Although there is always some risk, you just buy a stock, do nothing else, and make money. Astonishingly, investment income is taxed at a much lower percentage than wage income. The top rate is 20%, and there are no payroll taxes.
Finally, I learned about property taxes. Each year, like others, I pay taxes on my home. There are no taxes on investment assets. For most working people, their home is their most valuable asset. For wealthier people, often stocks and bonds are. When I bought a car, I paid taxes, when I buy investments I don’t.
Investment assets and income from investments have tremendous tax advantages. This means the divide between the wealthy and the working class will continue to grow. The working class often work harder, but the wealthy will continue to get further ahead because our government picks winners and losers.