Buildings on Wall Street/ Little Larry flickr

By Ben West-Weyner

This year was my first time filing my own income taxes, and I was happy to be eligible for a tax credit due to my tuition payments. However, the experience left me curious as to what this process looks like for the more wealthy.

According to our tax code, individual Americans who earn more than $400,000 in a year are supposed to pay 39.6% of their income in taxes. In 2009, the richest 400 individual taxpayers on average paid less than 20 percent of their earnings to the government. Compare this with the fact that individual taxpayers that same year earning between $33,951 and $82,250 were asked to pay 25% in taxes.

Corporations and the most wealthy have found a way to pay taxes on a regressive scale (the more you earn, the smaller percentage paid) within our existing progressive tax structure. But how?

• Americans that make their living managing investments on Wall Street take a percentage of their clients’ profit. That money, classified as “carried interest”, is taxed at a maximum 20% regardless of how large the check.
• Corporations that move their funds to offshore bank accounts aren’t required to pay taxes on those earnings until the assets repatriate back into the United States. However, if those funds are directly invested into the market, and later yield capital gains, the low rate of 15-20% is applied. Not only does this loophole create de facto tax evasion, but encourages the relocation of factories overseas, moving jobs abroad.
• Using a tax break that intends to incentivize energy innovation, oil and gas companies searching for fossil fuel reserves are subsidized regardless of whether their hunts are successful. For example, in 2011 Chevron paid 4% of their earnings in taxes, while Exxon Mobil paid 2%.
• Other loopholes allow wealthy Americans to classify their yacht as a home, and benefit from the Home Mortgage Interest Deduction, while purchases of corporate jets can be written off like any other business expense.

For more on how loopholes impact both federal spending and the deficit, check out NPP's most recent "Big Money in Tax Breaks" report. If you’re interested in how our representatives in Washington plan to modify current tax policy, check out this easy to digest breakdown of three federal budget proposals. To really visualize the effect of these tax breaks, check out this interactive graphic.