Let’s Actually Tax the Rich?

Robert Reich

Income and wealth are now more concentrated at the top than at any time over the last 80 years, and our unjust tax system is a big reason why. The tax code is rigged for the rich, enabling a handful of wealthy individuals to exert undue influence over our economy and democracy.

Conservatives fret about budget deficits. Well, then, to pay for what the nation needs – ending poverty, universal health care, infrastructure, reversing climate change, investing in communities, and so much more – the super-wealthy have to pay their fair share.

Here are seven necessary ways to tax the rich.

First: Repeal the Trump tax cuts.

It’s no secret Trump’s giant tax cut was a giant giveaway to the rich. 65 percent of its benefits go to the richest fifth, 83 percent to the richest 1 percent over a decade. In 2018, for the first time on record, the 400 richest Americans paid a lower effective tax rate than the bottom half. Repealing the Trump tax cut’s benefits to the wealthy and big corporations, as Joe Biden has proposed, will raise an estimated $500 billion over a decade.

Second: Raise the tax rate on those at the top.

In the 1950s, the highest tax rate on the richest Americans was over 90 percent. Even after tax deductions and credits, they still paid over 40 percent. But since then, tax rates have dropped dramatically. Today, after Trump’s tax cut, the richest Americans pay less than 26 percent, including deductions and credits. And this rate applies only to dollars earned in excess of $523,601. Raising the marginal tax rate by just one percent on the richest Americans would bring in an estimated $123 billion over 10 years.

Third: A wealth tax on the super-wealthy.

Wealth is even more unequal than income. The richest 0.1% of Americans have almost as much wealth as the bottom 90 percent put together. Just during the pandemic, America’s billionaires added $1.3 trillion to their collective wealth. Elizabeth Warren’s proposed wealth tax would charge 2 percent on wealth over $50 million and 3 percent on wealth over $1 billion. It would only apply to about 75,000 U.S. households, fewer than 0.1% of taxpayers. Under it, Jeff Bezos would owe $5.7 billion out of his $185 billion fortune – less than half what he made in one day last year. The wealth tax would raise $2.75 trillion over a decade, enough to pay for universal childcare and free public college with plenty left over.

Fourth: A transactions tax on trades of stock.

The richest 1 percent owns 50 percent of the stock market. A tiny 0.1 percent tax on financial transactions – just $1 per $1,000 traded – would raise $777 billion over a decade.That’s enough to provide housing vouchers to all homeless people in America more than 12 times over.

Fifth: End the “stepped-up cost basis” loophole.

The heirs of the super-rich pay zero capital gains taxes on huge increases in the value of what they inherit because of a loophole called the stepped-up basis. At the time of death, the value of assets is “stepped up” to their current market value – so a stock that was originally valued at, say, one dollar when purchased but that’s worth $1,000 when heirs receive it, escapes $999 of capital gains taxes. This loophole enables huge and growing concentrations of wealth to be passed from generation to generation without ever being taxed. Eliminating this loophole would raise $105 billion over a decade.

Six: Close other loopholes for the super-rich.

For example, one way the managers of real estate, venture capital, private equity and hedge funds reduce their taxes is the carried interest loophole, which allows them to treat their income as capital gains rather than ordinary wage income. That means they get taxed at the lower capital gains rate rather than the higher tax rate on incomes. Closing this loophole is estimated to raise $14 billion over a decade.

Seven: Increase the IRS’s funding so it can audit rich taxpayers.

Because the IRS has been so underfunded, millionaires are far less likely to be audited than they used to be. As a result, the IRS fails to collect a huge amount of taxes from wealthy taxpayers. Collecting all unpaid federal income taxes from the richest 1 percent would generate at least $1.75 trillion over the decade. So fully fund the IRS.

Together, these 7 ways of taxing the rich would generate more than $6 trillion over 10 years – enough to tackle the great needs of the nation. As inequality has exploded, our unjust tax system has allowed the richest Americans to cheat their way out of paying their fair share.

It’s not radical to rein in this irresponsibility. It’s radical to let it continue.

(Robert B. Reich is Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has been a member of the faculties of Harvard’s John F. Kennedy School of Government and of Brandeis University. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton.)

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New Study: Ultra-Wealthy Are Paying Even Less Taxes than You Think

Scott Cooper

The U.S. personal income tax system is what economists call a “progressive” one — meaning that the tax rate increases with the amount of taxable income. The idea is to take the tax burden off of lower-income people and shift it to those with a higher ability to pay. To make the concept even clearer, consider its opposite, the “regressive” tax: A sales tax is the same for everyone, so by definition those with lower income pay a higher percentage of that income in tax when they purchase, say, even just a box of tissues.

The bottom line with income tax: the more money you make, the more taxes you pay — right? Not necessarily.

Sure, the wealthiest in the United States are subject to a top rate of 37 percent on their taxable income (a reduction from 39.6 percent thanks to Trump). But this is capitalism, and the golden rule is that whoever has the gold makes the rules. Our system is riddled with ways for the ultra-wealthy to “protect their assets,” effectively decreasing the amount of income on which tax can be levied.

The ultra-wealthy — or more accurately, their accountants, and they can afford to hire the best ones — use all sorts of tricks. They hide their money in tax havens — places like the Cayman Islands, where taxes are very, very low. They create shell companies that exist only on paper, and channel their money into them. There are equity swaps: two rich guys exchange the gain and loss of a set of assets without actually transferring ownership. They create shell trust funds. The list goes on and on — and every one of these tricks, allowed within the letter of the law, is a form of tax evasion.

No one in the working class has the ability to take advantage of any of these tax-avoidance gifts to the ruling rich. The wealthy hold on to their money while the rest of us fund everything from trash collection to U.S. imperialist forays into other countries. The number one way they do this is by having a tax system that distinguishes between labor income (wages, salaries, and employer-provided benefits) and capital income (dividends, interest, rental income, capital gains, and so on). The former flows from doing actual work; the latter flows from ownership of assets. The U.S. tax code is page after page of helping the wealthy keep their capital income. Meanwhile, if workers fail to pay their income tax, the government will just take it directly from their paychecks.

As a result of those “loopholes, the richest 1 percent pay an effective federal income tax rate of less than 25 percent. And one of every five millionaires pays a lower rate than someone making $50,000 to $100,000.

On top of that, it’s important to remember that only about half of the taxes the federal government collects come from the income tax. About a third come from payroll taxes, which are levied only on the first $130,000 or so of earned income. That means they soak working people while letting those who make the most money completely off the hook for most of their earned income. (The word “earned” here is a misnomer, of course. When was the last time you saw any rich people put in a hard day’s work to “earn” their money?)

New research shows that tax avoidance by the “very top sliver of high-income Americans” (in the words of the Wall Street Journal) is even greater than thought. “Tax Evasion at the Top of the Income Distribution: Theory and Evidence” is the latest working paper from the National Bureau of Economic Research. The study conducted by academic economists and the Internal Revenue Service estimates that the top 1 percent of U.S. households do not report more than 20 percent of their income, and that the highly sophisticated strategies they use for a good portion of that is beyond the capability of random audits to detect. For the top 0.1 percent, unreported income may be nearly twice as large as the IRS has long thought.

What does the IRS propose to do about that? Commissioner Charles Rettig, testifying before Congress last week, begged for money for more specialized agents to track down the taxes.

Of course, that’s mostly posturing. Those agents would only be looking for the “bending” of the rules that favor the wealthy. The IRS stance has nothing to do with achieving the true intent of progressive taxation, and shifting the tax burden to the wealthy.

There are nearly 640,000 millionaires living in the United States. According to the TracIRS project at Syracuse University, they are rarely audited; in fact, since 2012, there has been a 72 percent reduction overall in the number of millionaire audits. In 2020, 98 percent of those making more than $1 million were not audited — despite that it is supposed to be routinely done. At the same time, most giant corporations have watched audits disappear.

All in all, there is nothing progressive about U.S. taxation. The working class and poor subsidize the wealthy. This is not going away, regardless of whether a Democrat or Republican is in the White House. The two parties are committed to upholding a system based on the exploitation of the great majority of people to serve the interests of the few. Sure, there may be this or that reform, and even calls to “tax the rich” at higher rates so they pay their “fair share.”

Karl Marx and Friedrich Engels wrote on several occasions that tax reform can make small inroads into addressing some income inequality, even without overthrowing capitalism. But “fair” is no less a misnomer than “earned.” There is nothing fair about capitalism. The real solution lies in toppling a system that puts the interests of the few above the needs and interests of the many, and replacing it with socialism — that is, organizing society so everyone collectively owns and regulates the means of production, distribution, and exchange in the interest of serving the needs of the many.

No one needs a million dollars.

(Scott Cooper is a writer, editor, and longtime socialist activist in the USA. Article courtesy: Left Voice, a US socialist news site.)

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To Help Fund Covid Recovery and Redress Inequality, Warren Unveils Wealth Tax on ‘Ultra-Millionaires’ and Billionaires

Kenny Stancil

Citing the explosive growth of inequality during the coronavirus crisis—which has followed more than four decades of upward redistribution and concentration of wealth at the top—Sen. Elizabeth Warren on Monday introduced a bill to tax a small portion of the wealth of the richest 100,000 households in the United States to help fund President Joe Biden’s Build Back Better agenda.

“As Congress develops additional plans to help our economy,” Warren (D-Mass.) said in a statement, “the wealth tax should be at the top of the list to help pay for these plans because of the huge amounts of revenue it would generate. This is money that should be invested in child care and early education, K-12, infrastructure, all of which are priorities of President Biden and Democrats in Congress.”

Called the Ultra-Millionaire Tax Act of 2021 (pdf), the legislation would levy a 2% annual tax on the net worth of households and trusts above $50 million, plus a 1% annual surtax on billionaires—bringing in at least $3 trillion in revenue over 10 years without raising taxes on the 99.95% of American households worth less than $50 million, according to a recent analysis (pdf) by University of California, Berkeley economists Emmanuel Saez and Gabriel Zucman.

“The Ultra-Millionaire Tax Act will narrow the country’s extraordinary wealth gap, raise trillions of dollars from the super-wealthy, and help fund the recovery our nation so desperately needs,” said Frank Clemente, executive director of Americans for Tax Fairness. “We’ve calculated that U.S. billionaires have increased their wealth by nearly 50% since the pandemic began while tens of millions of people have lost their jobs, can’t pay their rent, and go to bed hungry at night.”

In addition to claiming the lives of more than 500,000 people in the U.S., the ongoing Covid-19 pandemic has “shone a harsh light on America’s staggering inequalities,” said Susan Harley, managing director of Public Citizen’s Congress Watch division. “The fortunes of the richest Americans are ballooning while huge swaths of America suffer.”

The Ultra-Millionaire Tax Act, according to Chuck Collins, director of the Program on Inequality at the Institute for Policy Studies and author of The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions, “will capture a portion of the tremendous windfall that billionaires have reaped during the pandemic.”

In addition, Collins said, the wealth tax “will both restore lost fairness and progressivity to the U.S. tax system and will also slow the build-up of democracy-distorting concentrations of wealth and power.”

Decrying “the hyper concentration of wealth among a tiny number of multimillionaires and billionaires,” Rep. Brendan Boyle (D-Pa.), who joined Warren and Rep. Pramila Jayapal (D-Wash.) in introducing the bill, pointed out that “wealth inequality is at its highest level since the Gilded Age.”

While it is true that ordinary families have struggled for the past year “to put food on the table, keep the heat on, and pay the rent during this devastating economic crisis… [as] the rich have only gotten richer,” as Jayapal (D-Wash.) said, Boyle noted that “the wealth share of the richest 0.1% has nearly tripled since the late 1970s.”

The growing divergence between the fortunes of the nation’s ultra-rich and its working class has accelerated since March 2020, but the wealth gap has been widening for decades. According to Saez and Zucman, “the top 0.1% wealth share has increased dramatically from about 7% in the late 1970s to around 20% in recent years. Conversely, the wealth share of the bottom 90% of families has declined from about 35% in the early 1980s to about 25% today.”

“As a result, the top 0.1% today owns almost as much wealth as the bottom 90% of U.S. families, which includes the vast majority of U.S. families,” the economists wrote. “The rise of wealth concentration has been particularly extreme for billionaires.”

Alluding to the intensification of inequality since the late 1970s, Sen. Jeff Merkley (D-Ore.), one of the bill’s cosponsors, said that “when I was growing up, my dad’s job as a union machinist was enough to buy a modest house, pay our family’s bills, and take us on annual camping vacations. But since then, costs have gone through the roof and wages have stayed the same, making stories like my family’s fewer and farther between.”

That’s no accident, according to Merkley, who said that “the powerful and privileged have spent decades bending Congress around their wishes to give themselves tax giveaway after giveaway, while cutting investments in the things working families need to thrive, like living wage jobs, affordable healthcare, a good education, and a home they can afford.”

As Warren said, “The ultra-rich and powerful have rigged the rules in their favor so much that the top 0.1% pay a lower effective tax rate than the bottom 99%.” According to Saez and Zucman, families in the bottom 99% owed 7.2% of their wealth in federal, state, and local taxes in 2019, while the total tax burden of the wealthiest 0.1% was 3.2%.

The Democratic lawmakers who introduced the Ultra-Millionaire Tax Act of 2021 wrote that “by focusing on incomes, the tax system largely misses the massive amount of wealth this tiny sliver of ultra-rich families has accumulated.”

“A wealth tax,” Warren noted, “is popular among voters on both sides for good reason: because they understand the system is rigged to benefit the wealthy and large corporations.”

Referring to a 2020 poll (pdf) conducted in 11 key battleground states by Data for Progress, which found that 61% of voters said they would be more likely to cast a ballot for a candidate who supports a wealth tax, Warren added that she’s “confident lawmakers will catch up to the overwhelming majority of Americans who are demanding more fairness, more change, and who believe it’s time for a wealth tax.”

Stephanie Taylor, co-founder of the Progressive Change Campaign Committee (PCCC), said that “a tax on wealth above $50 million is very popular, and is even more popular when it funds priorities like child care, healthcare, and jobs in our communities. As President Biden calls for a Build Back Better plan that invests in American infrastructure and jobs, every senator should be proud to fund these investments by signing on to Senator Warren’s wealth tax legislation.”

Cosponsored by several lawmakers, including Sens. Bernie Sanders (I-Vt.), Sheldon Whitehouse (D-R.I.), Kirsten Gillibrand (D-N.Y.), and Ed Markey (D-Mass.), the legislation has also been endorsed more than two dozen organizations, from unions like the AFL-CIO and UNITE HERE, to advocacy groups such as Jobs with Justice, People’s Action, and Sunrise Movement.

“A wealth tax could begin to close America’s yawning wealth gap and repair the damage it has caused to workers and families,” Kitty Richards, a fellow at the Roosevelt Institute, said in a statement.

“Now is the time to Build Back Better, and that should include taxing wealth,” added Richards, who, along with her progressive think tank colleagues, has explained why a federal wealth tax is constitutional despite claims to the contrary made by right-wing critics.

Although Warren has debunked ill-conceived concerns that wealthy Americans will renounce their U.S. citizenship to avoid paying their fair share in taxes, the bill includes a 40% exit tax to preempt such attempts.

There are additional anti-evasion measures as well, including a $100 billion investment to rebuild and strengthen the Internal Revenue Service and a 30% minimum audit rate for taxpayers subject to the wealth tax, among other tools.

“It’s time to level the playing field and passage of the Ultra-Millionaire Tax Act would be a monumental step toward addressing wealth inequality,” said Harley of Public Citizen. “99.9% of Americans won’t owe an extra dime in taxes under this proposal while the super-rich who have benefitted from a rigged system will finally start paying their fair share in taxes.”

According to Dana Bye, campaign director at Tax March, the U.S. economy is currently at a “crucial decision point between recovery and further disaster.”

“To revive America’s middle and working classes again, safeguard the country from future collapse, and build a new economy that truly works for everyone,” Bye said, “Congress must tax the trillions of dollars in wealth hoarded by a few ultra-millionaires.”

( Article courtesy: Common Dreams, a US non-profit news portal.)