The big rich scam is that you're taxed 15% on stocks no matter what your income.
Sort-of. It gets complicated.
But yes, you are taxed 15% on long-term capital gains (any investments you hold for longer than one year). You are taxed income rates on short-term gains.
The catch is how capital gains gets calculated on the stock. It's not cut and dry, and that's where the games are played. If I buy stock through an employee purchase plan, the amount I spend is considered the 'cost basis' for determining capital gains. Thus, the difference in what I spend and what I receive when I sell the stock is the capital gain (or loss), simple enough. When I'm awarded a sum of stock by my employer, income tax needs to be paid on the cost basis. Some companies may simply withhold some portion of the stock to cover the income tax involved. So I do pay tax on stock I'm awarded as part of my performance review, at income tax rates.
Now, because I'm not an executive, I don't get
personalized stock options, which is where I could cut how much I owe in taxes. This is done via back-dating of the options. Usually to make the cost basis lower, and thus less of the value is taxable under income tax rules. Leaving more of the stock's value under the long-term capital gains tax rules.
And once you are getting paid this much money to begin with, holding onto a stock for a year to get the long-term tax rates is absurdly easy. The idea was to encourage longer-term investment, and punish folks like day traders, but it also means that stock awards
are a way you can pass more wealth onto a high-ranking employee while letting them keep more of it rather than having it taxed. From the company's perspective, it is the right thing to do, since to pay X post-tax dollars to an exec, it is cheaper to the company this way. Doesn't mean it's the right approach when it comes to trying to tie tax burden to "income", which I agree with you on.
You're taxed at 0-35% depending on income. Once you earn $388,000, every dollar ABOVE $388,000 is taxed at 35%.
Actually, every dollar above $8,700 is taxed higher than 15% for normal people.
So, even a person earning 50K (which is taxed at 28%) would love to have the 15% tax bracket instead of 28%.
The starting pay for the 28% bracket is around 85k, not 50k. Although the 25% bracket starts at around 35k, and isn't much lower as a percentage. The 15% tax bracket ends at 35k, not 8700$. You are thinking of where the 10% bracket ends. Note that this is for the 2012 tax year in the US. The 2013 brackets are edged up a little higher, and adds a 39.6% bracket at 400k.
