Some remaining revisions to this thread:
Your reader wrote, "Earning more than $106k a year won't entitle you to any more in social security benefits, so one should not be taxed on income in excess of that…" This perpetuates a basic and harmful misunderstanding of Social Security and how it is paid for.
Social Security is not a self-funded retirement plan. My payroll deductions do not pay for my future benefits, they pay for the benefits of current retirees. While my benefits will not increase over a certain amount even if I were to pay additional payroll taxes, that should not be relevant, since I am not paying for my own benefits. If the issue is revenue – how to pay for benefits – and I think it is, then there is no rational reason not to tax income over $106K to create additional income for social security. I don't really need that "bonus" I get every September as a reward for being highly paid in the first place.
Another:
I take issue with what your reader wrote:
Dividends are paid by corporations who are already subject to 35% federal tax rates on the income they earn. So while Bill Gates personally may pay 15% on the cash Microsoft pays him as dividends, Microsoft has already paid 35% of federal income tax on its earnings in that year, whether or not it chooses to pay the dividend. And that dividend the company pays out is not deductible against its tax bill.
In light of the reporting of the NYT, I don't see how we can expect any major US corporation to be paying the nominal 35% tax rate – that is just smoke and mirrors. In fact, Microsoft pays 25% according to Forbes, and frankly I was surprised that it is that high.
Another:
As I'm sure others will also point out, Bill Gates is not taxed at a 15% rate on the dividends paid to him by Microsoft. Dividends are taxed as regular income, not capital gains. Long term capital gains, which qualify for the 15% tax rate, result when Bill sells his Microsoft stock after holding it for more than a year; Microsoft pays no corporate income tax on those gains because they don't own the stock, and don't profit when Bill sells it.
Update: A CPA writes:
Bill Gates' Microsoft dividends absolutely ARE taxed at 15% at the federal level. One of the Bush tax breaks was to lump qualifying dividends (those paid out of a subsection C corporation's earnings) together with long-term capital gains when calculating capital gains that are taxed at the maximum rate of 15% for those in the 25% percent bracket and higher. Even better, if you are in the 15% bracket or lower, qualifying dividends and long-term capital gains are taxed at ZERO percent federally.
I've had to explain to a senior citizen client of mine sitting on a million dollars of utility stock paying $45,000 of dividends a year that they owe no federal income tax whatsoever, even with having to pick up 85% of their Social Security payments in adjusted gross income. That's pretty fucked up.
The Dish 