We all know the rich get away with paying virtually no taxes. There is a key way they do that beyond the income tax: capital gains and dividends. As the folks from Citizens For Tax Justice point out:

The biggest and most unjustified of these subsidies is the special low tax rate on capital gains and dividends. These tax loopholes subsidize people whose income comes from investments rather than wages, as well the Wall Street brokers who rely on their business.

   70 percent of the cuts in capital gains and dividends go to the richest one percent of taxpayers. The poorest 60 percent of Americans get about 2 percent of the benefits:

For the richest one percent, the average tax cut is in the tens of thousands of dollars, while for the poorest sixty percent, the average is enough to buy one solid meal for one person. (The average tax breaks for all income groups are probably less now because everyone will have less investment income due to the market’s recent downturn, but the distribution of these tax cuts is likely unchanged.)

But President Bush and his allies nonetheless speak as though every American is sitting on a huge pile of stocks. For example, a few months back, Senator McCain said on ABC’s “This Week” that it would be a terrible idea to allow the Bush tax cut for capital gains and dividends to expire because “100 million people have investments.”

The reality is that most stock owned by middle-income people is in 401(k) plans, Individual Retirement Accounts (IRAs) or other similar retirement savings vehicles. Taxes on these investments are deferred until retirement, at which point they are taxed as “ordinary income,” meaning they don’t benefit from the tax cuts for capital gains and dividends. This is supported by IRS data showing that in 2005, fewer than 22 million taxpayers received any benefit at all from the special low rates for capital gains and dividends — far fewer than the 100 million implied by Senator McCain.

   You can see the full CTJ reports here.

   The main point–and this will be an increasingly important point to make in the coming months–is that there is plenty of money to fund what we need to do in the country, even with the $700 billion Paulson bailout for bankers and the other taxpayer money shelled out to save AIG and Fannie Mae and Freddie Mac.

   But, we need to go where the money is: the rich people in the country. Get your pitchforks out.