Why The 1% In Finance Pay So Little In Taxes The tax code allows wealthy people who live off investment income to pay taxes at a much lower rate than average people who earn salaries.
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He's Part Of The 1%. And He Thinks His Taxes Aren't High Enough

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He's Part Of The 1%. And He Thinks His Taxes Aren't High Enough

He's Part Of The 1%. And He Thinks His Taxes Aren't High Enough

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NOEL KING, HOST:

A New York Times investigation into President Trump's tax returns found that in some years, he paid little or even no taxes. Now, he is not the only rich person to not do so. The tax code favors people who live off of investments, including a lot of people in finance who run hedge funds or manage money. Here's NPR's Jim Zarroli.

JIM ZARROLI, BYLINE: Morris Pearl is part of the 1%. He's a former managing director at the giant investment firm BlackRock. He has an apartment on New York's Park Avenue, and he lives off his stock investments. These days, Pearl says, the taxes he pays are lower than ever.

MORRIS PEARL: I, for instance, have not worked since 2014. All of my money comes from investments. I'm doing fairly well, but my tax rate is in the teens.

ZARROLI: That's right. He pays a lower tax rate than the average teacher or letter carrier. Pearl is a millionaire. He even chairs an organization called Patriotic Millionaires, and he thinks the way the tax system works is disgraceful.

PEARL: Our system allows rich people, particularly real estate developers and investors, to pay far lower taxes than people who work for a living.

ZARROLI: U.S. tax law was designed to be progressive, meaning the more you earn, the more you pay. But it doesn't always work out that way. When President Trump was running for office, he promised to overhaul the tax code.

(SOUNDBITE OF ARCHIVED RECORDING)

PRESIDENT DONALD TRUMP: It is riddled with loopholes that let some special interests, including myself, in all fairness - it's going to cost me a fortune, this thing; believe me. Believe - this is not good for me.

ZARROLI: The tax bill Trump ultimately signed into law in 2017 got rid of some deductions and loopholes, but it retained one provision that mostly benefits rich people.

CHARLES KHAN: As far as tax loopholes go, it's one of the more well-known tax loopholes because it is so ridiculous.

ZARROLI: Charles Khan is with the Strong Economy For All Coalition, a group of community and labor groups. He says people who live off investments such as stocks and real estate are taxed differently than people who earn salaries.

KHAN: But instead of paying the income tax rate, which could be as high as, I think, you know, 37%, they pay capital gains.

ZARROLI: And the capital gains tax rate tops off at 20%. Trump's tax bill also retained another very controversial provision. It allows money managers and hedge fund titans to take their salaries as investment income, meaning they pay that lower rate. Trump insists that his tax cuts helped fuel an economic boom, at least until the coronavirus hit. Here he is at his State of the Union address soon after signing the bill.

(SOUNDBITE OF ARCHIVED RECORDING)

TRUMP: We enacted the biggest tax cuts and reforms in American history.

(APPLAUSE)

ZARROLI: But economist William Spriggs of Howard University says the bill kept some rules in place that benefit the rich, especially people such as President Trump who made their money in real estate. And Spriggs says that by cutting corporate taxes, the bill helped fuel a long rally in stock prices, and that's benefited the rich even more.

WILLIAM SPRIGGS: People who were owning stocks were the big beneficiaries because their income was going up, whereas wages have stagnated.

ZARROLI: Even through the recession, the stock market has continued to do well. People who own stocks have seen their portfolios grow, and they continue to pay much lower taxes on the profits they bring in.

Jim Zarroli, NPR News.

(SOUNDBITE OF FEVERKIN'S "MARCH (FT. VACANT)")

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