Joe Biden is ready to tax the richest of the rich. Congress? Not really. – Mother Jones

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From a story by New York Times Earlier this week, the Biden administration pushed statistics based on “unconventional” methodology to show that American billionaires are not paying their fair share of taxes.

Income tax is generally progressive. Contrary to popular belief, most of the top 1% of earners not pay lower income tax rates than Warren Buffett’s proverbial secretary. Their rates tend to be much higher, although the United States 400 first wage earners have found a way to pay roughly the same average tax rate as those in the 80th income percentile.

Under federal rules, a person may have insane wealth and little income to report. A guy like Buffett, whose net worth is largely tied to stocks and private investments, doesn’t need to hit a paycheck. In fact, like ProPublica revealed, based on data leaks from the IRS, Buffett and many of his top 400 peers – Bezos, Gates, Musk, Soros, Zuckerberg, etc. – avoid income almost entirely, so there is very little to tax. They can simply borrow money from their vast investment holdings and live on it instead, paying a few percent interest instead of 37 percent, the highest rate the IRS charges on income. regular work.

What makes the administration’s new calculations ‘unconventional’ is that they count unrealized capital gains – profits on paper – as income when calculating effective tax rates for the very rich. . This is risky, because these earnings are currently not considered taxable income by the IRS, only when you to sell an asset are you taxed on the profit. The rates on long-term capital gains, that is, profits on the sale of investments held for a year or more, are 15% or 20%, depending on the size of the profits.

Some economists, notably Emmanuel Saez and Gabriel Zucman of UC-Berkeley, have argued that the federal government should paper profits tax. But that doesn’t seem at all likely to fly with this, or maybe any, Congress. As it stands, Biden was hoping to almost double the top capital gains rate from 20% to 39.6%, the same maximum rate Biden wants to restore on regular wage income.

Treating capital gains the same as wages for tax purposes would go a long way in reducing the yawning wealth divide in the United States and also narrow the racial wealth gap. But Congressional Democrats don’t have the stomachs or the voices. Stuck with a 50-50 split in the Senate and a few recalcitrant moderates, they instead proposed to lower the top capital gains rate from 20% to just 25%.

Even this rather modest increase is met with resistance from wealthy and powerful executives and investors, the business groups that represent them (such as the Business Roundtable and the United States Chamber of Commerce), and financial firms that serve the needs of consumers. ultra-rich by maximizing their return on investment. and minimizing their taxes.

Another wealth maintenance tip that is unlikely to die off is the “base increase” rule, which I explain in detail here. Basically, this means that the ‘base price’ of my invested assets – the amount I originally paid for them – is reset to the current market value of the assets upon my death, so neither I nor my heirs will never pay capital gains tax on those profits. As blatantly unfair as it may be to people who work for a living, there are wealthy people on both sides of the aisle who want to keep the edge intact.

What strikes me about all of this is that the administration didn’t even need complicated calculations to show billionaires aren’t paying their fair share. As Saez and Zucman point out in their 2019 book, The triumph of injustice, if you combine all the taxes we pay (business, property, consumption and inheritance taxes), the richest pay less as is. Much less.

Emmanuel Saez and Gabriel Zucman, The triumph of injustice

When federal, state, and local taxes are factored in, we end up with something conservative politicians have long been calling for: a lump sum tax. In 2018, as noted above, the average combined tax rate for all Americans was 28%. The working class, which Saez and Zucman define as the lowest 50 percent of earners, was compensated an average of $ 18,500 per year, and paid about 25 percent of that in miscellaneous taxes. The average combined tax rate slowly increases as we move up the income ladder, reaching around 28 percent for 90th to 99th percentile income, and most of the 1 percent. The top 0.1% and above, most of them, paid between 30% and 35% in total. But the first 400? They paid less than the poorest Americans: only 23%.

These are the scoundrels we need to watch out for.

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