Why Congress is still not on board
This Black Friday, Americans Officially Launch What Analysts Expect To Be a record-breaking holiday sales season. But as inflation and supply chain problems threaten to wipe out spending by low-income households as the price of food and other basic necessities rises, wealthy Americans should does more than make a difference.
If the House of Representatives version of the Build Back Better Act becomes law, it will cost $ 1.75 trillion to overhaul America’s health care, child care, education and climate systems.
It is no joke to point out that this disparity in disposable income is no accident – rather, it is a choice that lawmakers have made time and time again over the decades.
American policymakers and economists once agreed that a progressive taxation gives the best results. All of this means that the government is imposing a higher percentage rate on taxpayers who have higher incomes. In other words: if you earn more, you pay more, proportionately, in taxes. It is not a very controversial idea.
Nor is the idea that it is in fact economically advantageous to leave poor and low-income people a greater proportion of the money they earn. Typically, these employees will spend most, if not all, locally: in grocery stores, retail stores, small businesses, on auto repairs and doctor visits. This in turn has a multiplier effect on every dollar.
This is the tax regime that the United States is supposed to follow. But you wouldn’t know given the efforts by some of our lawmakers to protect the investment accounts of ultra-rich Americans.
And that’s especially relevant right now because of President Joe Biden’s social spending plan. If the House of Representatives version of the Build Back Better Act becomes law, it will cost $ 1.75 trillion to overhaul America’s health care, child care, education and climate systems. A major question still asked in the Senate is whether the bill will ultimately be “paid” by tax increases on the rich?
A last-minute proposal to pay part of it is a new billionaire income tax, first proposed by Senator Ron Wyden, D-Ore. The ultra-rich derive much of their wealth from assets, like stocks. But, under the current state of the tax code, the ultra-rich do not pay taxes on these investments until they are sold. Instead, they are allowed to accumulate what are called “unrealized capital gains”: they are richer on paper but, unless they sell the shares, the government considers not increasing wealth as income.
With the exception of the ultra-rich, these unrealized gains work much like income, often acting as collateral against low or no interest loans often made by their own businesses.
Tesla CEO Elon Musk is a prime example: he does not receive a salary or cash bonus from Tesla; he would have to pay income tax on them. Instead, he gets stock options. From the first week of November, the value of its share was worth approximately $ 28 billion. And, instead of all the money tied up in those stocks, he took out loans from Tesla, using the stocks as collateral to use for his expenses. (Try this at your local bank and see how it works for you.)
The billionaire tax is not a socialist hunt before it eats the rich. It would only apply to those who have more than $ 1 billion in assets for three consecutive years, or anyone with more than $ 100 million in annual income.
The billionaire tax is not a socialist hunt before it eats the rich. It would only apply to those who have more than $ 1 billion in assets for three consecutive years, or anyone with more than $ 100 million in annual income. To put it more precisely, the median household wealth in America is approximately $ 700,000, according to CNBC. This would result in an increase in the wealth tax which is 1,420 times more than that.
This proposal targets around 700 people in America, a country in which, according to census data, about 37 million people live in poverty. Slightly raising taxes on 700 of America’s richest people – each worth more than $ 1 billion – would create transformational change for millions of people.
The proposal has White House support, but it doesn’t sit well with many in Congress – especially conservatives who say it’s unfair to the “poor” billionaires who have contributed the most to our economy. But here’s the catch: a deep dive of ProPublica identified at least 18 billionaires and 252 other very wealthy but not quite billionaires who received stimulus checks under the CARES Act of 2020. They didn’t cheat to get it – it turns out that a lot of the very rich don’t really get much of what the rest of us rely on for income. In the case of each of the 18 billionaires, none had an income greater than $ 75,000, which qualified them for relief funds financed by the taxpayer.
In truth, our tax system favors the way the rich get richer on their assets over the way ordinary people earn a salary. Regular workers earn their income from their work, whether it is paid by the hour or as an annual salary. And maybe they could take a deduction here or there, but working Americans pay taxes on that income. Truly wealthy Americans, however, have options on how and when to translate their wealth into income. They can then manipulate that schedule in a way that not only allows them to avoid taxation but, as we see above, to benefit from the largesse of the, uh, average taxpayer.
This perpetuates the inequality of wealth that plagues our country. The Gini index measures economic inequality in a nation, measuring how income is distributed among a population. (The index goes from zero to one, zero being perfect equality and one being perfect inequality.)
Last year, the US Gini Index was at 0.49, a tie for the highest on record. It’s not the absolute worst score, but it certainly falls short of the world’s greatest democracy.
If you want to see who is penalized by the system as it exists, it is American workers. If you don’t tax the rich fairly because they make money differently from the poor, you are literally ensuring that our huge inequality continues to grow. This is exactly what the Republican resistance to a wealth tax is doing.