Taxes are unfair but the cure is not the Right’s poisonous bromides
In Dr. Joseph E. Stiglitz’s 2014 paper “Inequality in America: A Policy Agenda for a Stronger Future” he explains how taxes on income were not necessarily progressive. A progressive tax is one where the average tax burden increases with income. Stiglitz explained that for a tax to be truly progressive it should also be pre-distributive.
The goal of income tax is redistribution of resources. But what if income was not how the wealthy traditionally obtain their income?
Progressive taxes should also mean that a country should prevent inequalities from occurring in the first place. You don’t do that by using income tax and mean-tested safety nets that catch people after they fall.
The wealthiest 1% of households (net worth of at least $11 million) held 39.6% of US net worth in property.
The wealthiest 10% of households (net worth of at least $1.2 million) held 69.8% of total U.S. net worth in property.
Property can be defined as “That which generates Capital,” and can be defined as unearned income.
The result is that nearly 70% of mostly unearned US wealth that is barely touched with taxes, while someone like myself that qualified for the $1,400 Trump Stimulus Covid check, ended up owing over $2,400 to the IRS. This is after payroll taxes and the taxes which I pre-pay every paycheck, so I don’t get a $2,400 bill.
What was that “stimulus” check, a loan?
For wealthy households, most of their income doesn’t appear on their annual tax returns because the tax code doesn’t consider it “taxable income.”
The wealthy aren’t working 9 to 9 jobs with a side gig selling Etsy, walking dogs, and hosting OnlyFans.
According to a 2015 Tax Policy Center study by Lydia Austin and Roberton Williams, for taxpayers making $500,000 to $1 million, salaries and wages account for a little more than half their earnings. For those making over $1 million (those in the top 10%) income stops becoming the primary income and income becomes a mix of capital gains, dividends, and business interests, for example owning a stake in a private company. For those making over $10 million (those in the top 1%) capital gains accounted for half of their earnings. Another 15% to 20% came from interest and dividends and 25% of their income came from business interests.
For the rest of us, as you know we make money going to work and coming home and selling blood on the weekends.
You also don’t have to pay taxes on capital gains, until you “realize” the gains, which means selling the gains and even then the minimal taxes they do pay, are not at the same rate as a person clocking in and in and out.
Here are the rates on Capital Gains:
“The tax rate on most net capital gain is no higher than 15% for most individuals. Some or all net capital gain may be taxed at 0% if your taxable income is less than $80,000.” -IRS
You read that right. Capital gains unearned $80,000 your taxes can be ZERO per the IRS.
If you earn $80,000 from a job as a the single filer you’d pay the lowest rate (10%) on the first $9,950 ($995) you makes; then 12% on anything earned from $9,951 to $40,525 ($3,669); then 22% on the rest, up to $80,000 ($8,684) for a total tax bill of $13,348.
There is nothing progressive about most income tax, since the wealthy aren’t paying their fair share, well they aren’t paying anything and the rest of us are paying it all. And what do we have to show for it —very little. If we get fired we get to live in a cardboard box. If we have a health issue, we get to die or live in a cardboard box. What are we paying taxes for when we have absolutely no security, no safety net and the rich are paying literally nothing, not figuratively nothing, but literally nothing.
Am I saying there should be no taxes? No, I’m saying tax UNEARNED INCOME. Tax capital gains. Tax the wealthy at the rate of a group of people who through theft and exploitation hold 70% of our country’s net worth hostage.
After accounting for payroll taxes, normal income taxes, and the net investment income tax, for the ordinary person, the top tax rate is 40.8% for income earned through a job. The top tax rate for income for long-term capital gains where the wealthy obtain most of their income is 23.8%.
But as we know very few of the wealthy are paying anywhere near 20%.
According to the American Progress the average income tax rate for the Forbes 400 is 8.2%.
Also, keep in mind that’s on the taxable income. That 8.2% isn’t their entire worth. There is lots of capital that are not taxable. Inheritances, gifts, and bequests (receiving assets such as stocks, bonds, jewelry, and cash) are not taxable. Also as you know the wealthy lie about how much they have.
The moderately compensated can’t continue paying for money we don’t have for the horrible conditions that bad policy has created for the poorest and us. It is not because we don’t want to, but because we literally don’t have enough money to fix the mess greed and laissez-faire capitalism has created.
The wealthy needs to pay their fair share.
And it is totally possible.
Batchelder and David Kamin (2019), using JCT projections (2016), estimate that taxing accrued gains at death and raising the capital gains tax rate to 28 percent would bring in $290 billion between 2021 and 2030. In the 90s this was approximately the tax rate.
At the very least we could do is eliminate the angel of death loophole. This would be eliminating basis step-up for heirs resulting in a regime called “carryover basis.” Say for instance Nana bought some See’s Candy stock in 1970 for $9.00 a share and she saved it and it went up in value to $100. But say instead of one share at $100, it’s 1000 shares and she leaves it all to you, her favorite grandchild. Owing to the step-up basis you just received $100,000 of income tax-free money. That $91,000 is never taxed, it is as if that money was never earned. According to the Brookings Institute eliminating that loophole would bring in approximately $100 billion in 10 years.
Let us start embracing the authentic idea of progressive taxes and taxing unearned income.