[hawkal]

This is a naive perspective, but, imagine someone has 10 million dollars banked, and earns 175,000 a year in dividends. S/he pay 26-35k in taxes (15-20%, cause I don't know tax code). Now, a couple has a combined income of 175,000 a year. They pay 40k in combined federal + FICA (used an income tax calculator). I think that 5-14k discrepancy is where the blame for "not paying taxes" comes from.

[rsync]

"... imagine someone has 10 million dollars banked, and earns 175,000 a year in dividends. S/he pay 26-35k in taxes ..."

I am imagining this and I immediately also imagine that quite a lot of income and/or capital gains taxes were paid during the accumulation phase of that $10M.

I suppose she could have inherited $10M tax free[1] but whoever bequeathed it to her then paid the taxes on it during the earning/accumulation phase.

My point is, comparing the present day taxes on dividends on a nest egg to the income taxes someone else is paying is not a very useful comparison. All else being equal it should not be interesting or provocative to see the income taxes exceed the nest egg taxes in an example like yours.

[1] Estate tax exemption in 2018 is $11M http://www.wealthmanagement.com/estate-planning/2018-estate-...

[JediWing]

Dividends are income. It's farcical that they are not treated as such in the US tax code.

I believe the point is that in the example above, someone living off their nest egg, able to do nothing, are paying less in taxes than someone still in the workforce, earning.

This exacerbates the concerns over wealth inequality because those who have built wealth, can then grow their wealth at a lower tax rate than those stuck at the bottom of the income ladder.

[hippich]

dividends are treated almost the same way. at least from tax rate point. now - you can offset dividends by other losses, but you can do similarly if you have just W2 income and run side business losing money (with few caveats)

EDIT: Thanks JediWing - I have no clue why I thought dividends are taxed at the same level. Thank you correcting me.

[JediWing]

Dividends are a flat 15% for earners under ~425k income, and a flat 20% for those over.

This means that a stock grant with a generous dividend is a loophole for high earners...in addition to simply adding complexity and magic thresholds to the tax code. It seems to me to be just bad policy.