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Another reason is that the very rich would change any businesses that currently are taxedunder the personal income tax into a “C corporation” (the type of business that pays thecorporate income tax) to enjoy the 15 percent corporate rate under Pawlenty’s plan.
Millionaires In General Would Enjoy Personal Income Cuts of at Least 41 Percent
Our calculations assume that Pawlenty’s plan would eliminate
itemized deductions and taxcredits, and even under these assumptions we find that in 2013:
Taxpayers with incomesin excess of $1 million would enjoy an averagecut in personal incometaxes of $288,800, a 41percent cut.
Taxpayers with incomesin excess of $10 million would enjoy an averagecut in personal incometaxes of $2.4 million, a46 percent cut.
The cost of the personalincome tax cuts just fortaxpayers with incomesin excess of $1 million would be $141.8 billion.
But That’s Not All the Tax Cuts the Wealthy Would Get From Pawlenty’s Tax Plan
In addition to these personal income tax cuts, under Pawlenty’s plan millionaires would alsoenjoy:
Repeal of the estate tax (which only affects families who transfer several million dollars worth of assets at death), and
A reduction in the corporate income tax rate from 35 percent to only 15 percent, which would primarily benefit the owners of the corporation by increasing stock dividends paidand capital gains on those stocks. (Neither dividends nor capital gains would be subject tothe personal income tax.) Corporate stock ownership is heavily concentrated on high-income people.Technical notes follow on page 3.
IncomeAverageAverageAverage GroupIncomeTax ChangeTax Change in Dollarsas % Change
$1 million — $5 million$ 1,854,800$ –168,200–39% $5 million — $10 million$ 6,830,900$ –687,000–42% $10 million and over$ 24,190,900$ –2,402,100–46%
All over $1 million$ 3,047,100$ –288,800–41%
Citizens for Tax Justice, June 2011
Compared to current law baseline for 2013
Impacts of Pawlenty Personal Income Tax Proposals on Millionaires in 2013 Assuming All Itemized Deductions and Credits Are Repealed
IRS. In 2008, the richest 400 taxpayers reported $21.6 billion of income from “S corporations” and another $0.7billion from “schedule C” sole proprietorships. If the businesses generating this income were left in their currentforms, they would be taxed at a top rate of 25 percent under the personal income tax under Pawlenty’s plan.Taxpayers would certainly change these businesses into C corporations, because Pawlenty’s plan would tax theirprofits at just 15 percent, while the personal income tax would not apply to dividends paid out to the owners.