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tax the rich
Here's a Good Topic for Candidates to Debate: Taxing the Filthy Rich
“The wealthiest of the wealthy have figured out how to get richer and richer and richer and richer in ways that just don’t show up on a tax form," said Sen. Elizabeth Warren at a recent Senate hearing. It's time to change that.
Sep 15, 2024
The first televised U.S. presidential debate came way back in 1960. Few of us who happened to watch that debate remember much about it. But a look back at the transcript of that debate — a session that concentrated on domestic issues — shows that the evening’s proceedings mentioned not a single word about a stunning domestic transformation then about midway through its third decade.
That transformation? The United States had become a significantly more economically equal nation. With federal tax rates running as high as 91 percent on top-bracket income and unions representing more than a third of America’s private-sector workers — over five times today’s private-sector union share — the United States had given birth to the world’s first mass middle class.
In just a single generation, America had gone from a nation where the richest 1 percent held nearly half the nation’s wealth to a nation where that top 1 percent held only just over a fifth of that wealth.
This stunning reality came up nowhere in that first debate between the Democratic Party candidate John Kennedy, then a U.S. senator, and Richard Nixon, the nation’s Republican vice president.
But what if that debate had explicitly recognized that reality? What if that debate’s panel of journalists had asked the candidates whether they would encourage or discourage, strengthen or trim, the tax and labor policies that had created a much more equal United States?
If those journalists had asked questions along that line, would John Kennedy, once president, have dared to ask Congress, as he did in 1963, to drop the top-bracket tax rate on America’s richest down to 65 percent?
That Kennedy-era Congress would end up lowering the nation’s top tax rate, from 91 to 70 percent. A bit over two decades later, in Ronald Reagan’s second term in the White House, that top rate would sink all the way down to 28 percent.
The current top rate? On income over $731,201, married couples filing jointly face a 37 percent tax rate. Taxpayers making 100 times that $731,201, over $73 million, face that same 37 percent top rate. And on “capital gains,” the profits from the sale of stocks and other assets, these rich pay taxes at no more than a 20 percent rate.
At last week’s first — and probable last — debate between Kamala Harris and Donald Trump, the two candidates faced no questions on how little in taxes our contemporary tax code expects rich people to pay. Few noticed. But last week, at a Senate hearing on Capitol Hill, Finance Committee chair Ron Wyden from Oregon did his best to inject how much in taxes rich people don’t pay into America’s most high-profile political deliberations.
The bargain-basement tax rates on high incomes now in place, Senator Wyden made vividly clear, only hint at the tax windfalls our super rich are now regularly realizing.
Our billionaires, Wyden noted as he opened the hearing, can essentially “avoid paying taxes forever” through a neat trick tax justice advocates have come to label “buy-borrow-die.”
Our ultra-wealthy, Wyden went on to explain, are using their wealth to acquire valuable assets, then watching those assets appreciate and borrowing against the higher value of those assets to generate the cash they need to maintain their luxurious lifestyles. Eventually, of course, these deep pockets die, but any tax owed on their investment gains simply “disappears into the ledgers of history.” Their heirs face no tax whatsoever on the gains their benefactors have left them.
“This kind of tax trickery isn’t available to nurses and firefighters and tradesmen. Their taxes come straight out of every paycheck,” Wyden pointed out. “The ultra-wealthy get their own special set of rules.”
Long-time tax attorney Bob Lord, the current senior advisor on tax policy for the Patriotic Millionaires network and an Institute for Policy Studies associate fellow, expanded on “buy-borrow-die” and assorted other lucrative tax dodges in his testimony today before Wyden’s panel. Those dodges could — and should — take center stage in 2025, he agreed, as America’s lawmakers debate whether to extend the 2017 Trump tax cuts for the rich set to expire by next year’s end.
Republican lawmakers on the Senate Finance Committee spent a huge chunk of their time at today’s hearing depicting America’s rich as noble souls doing their best to create jobs in the face of a tax system that harasses them at every turn. Senator Elizabeth Warren from Massachusetts disputed that depiction.
“The wealthiest of the wealthy have figured out how to get richer and richer and richer and richer in ways that just don’t show up on a tax form,” Warren noted. “The result: The top one-tenth of 1 percent pays about 3.2 percent of their wealth in taxes every year while the bottom 99 percent pays more than double that.”
The Biden-Harris administration, the Massachusetts senator added, has advanced a proposal that would subject Americans with net worths over $100 million — the nation’s wealthiest 10,000 people — to a minimum 25 percent tax on their income, well below our federal tax code’s current 37 percent top rate.
But these wealthy, Warren continued, are claiming that they don’t have the money to pay that tax because their wealth is sitting “all locked up in stocks.”
“Are these 10,000 mega-millionaires actually cash-poor?” Warren asked Robert Lord, the veteran tax attorney witness. “Are they living like monks?”
“I haven’t seen,” Lord smiled in reply, “many monks on yachts.”
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Global Wealth Tax Could Raise $2.1 Trillion Annually for Climate Action and More
"To make our economies secure and protect the earner way of life that has defined the modern era, we need wealth taxes that end the two-tier treatment of wealth," says a new report.
Aug 19, 2024
With countries set to focus heavily on climate finance for the Global South at the 2024 United Nations Climate Change Conference in November, the Tax Justice Network on Monday offered a proposal that could raise double the amount of money needed to help developing countries transition to clean energy and adapt to extreme weather—and there's already proof the idea is effective and politically feasible.
The "featherlight" wealth tax introduced in Spain less than two years ago raised hundreds of millions of euros last year by taxing the net worth of the 0.5% richest households, and the group's report argued that the law should serve as a model for a global wealth tax like the one increasingly supported by finance ministers in wealthy countries.
Spain's wealth tax, also called the "solidarity surcharge" by Prime Minister Pedro Sánchez, applied a tax of 1.7% to 3.5% to the richest 0.5% of the country's households—turning away from the "two-tier treatment of collected wealth and earned wealth" that TJN said is "the root of the problem" of growing inequality.
"Collected wealth—i.e. dividends, capital gains, and rent gained from owning things—is typically taxed at far lower rates than earned wealth—i.e. salaries gained by working," said TJN. "At the same time, collected wealth typically grows faster than earned wealth. Today, only half of the wealth created around the world each year goes to people who earn for a living—the rest is collected as rent, interest, dividends, and capital gains."
The two-tier tax system allows billionaires to pay tax rates that are half the rates paid by the rest of society, which has allowed the wealth of the richest 0.0001% people in the world to quadruple since 1987 "to the detriment of economies, societies, and planet," said TJN.
Because the richest 0.5% of households control, on average, more than 25% of any given society's wealth, the report states, if countries around the world replicated Spain's solidarity surcharge, governments could raise $2.1 trillion annually—enough to pay for climate finance as well as other pressing needs.
"By definition, a billionaire owns more wealth than an average U.S. household could spend in 10,000 years. Wealth contributes a lot less to the economy than it can when it's pharaoh-tombed like this, making economies poorer than the sum of their parts."
"To guarantee a good life for all citizens and preserve social cohesion despite these challenges, governments around the world need the fiscal space to transform economies in a socio-ecological manner, ensure high-quality education for all, guarantee access to modern health services, and fulfill basic needs like affordable housing, food, and transportation at the same time," reads the report. "Such measures are only feasible with sufficiently endowed and stable public budgets. A moderate, progressive wealth tax could help countries to raise these urgently needed funds."
The report shows, said Oxfam International, that "E.U. governments can no longer excuse their 'lack of funds' for failing to fight the climate crisis and end poverty. The money they need is in the pockets of the super-rich!"
In each country, half the population holds only about 3% of the wealth—a persistent inequality that is "making economies insecure and is directly linked to people having to spend more than they bring in."
The current global tax system treats billionaires as though they "earn wealth like everybody else, they're just better at it," said Mark Bou Mansour, head of communications for TJN. "This is bogus."
"It's impossible to earn a billion dollars," Bou Mansour said. "The average U.S. worker would have to work for a stretch of time 13 times longer than humans have existed to earn as much as wealth as the world's richest man has today. Salaries don't make billionaires, dividends and rent money do. But we tax dividends and rent money much less than we tax salaries, and this is destabilizing the earner model our economies are based on."
"By definition, a billionaire owns more wealth than an average U.S. household could spend in 10,000 years," he added. "Wealth contributes a lot less to the economy than it can when it's pharaoh-tombed like this, making economies poorer than the sum of their parts. To make our economies secure and protect the earner way of life that has defined the modern era, we need wealth taxes that end the two-tier treatment of wealth."
On the BBC, which featured TJN's report in a segment on Monday, Bou Mansour debunked the common claim that taxing the richest households would harm countries' economies by pushing rich people to move away.
"This is an area where public perception has been lagging behind the evidence," said Bou Mansour. "Recent wealth taxes in Norway, Sweden, and Denmark all resulted in a migration rate of 0.01% among the super-rich who were taxed. So what the data shows is that the super-rich do not leave en masse, and what's more striking is that the data shows if countries do not implement wealth taxes, that is far more harmful to the economies."
The report notes that concerns about the super-rich simply hiding their wealth in tax havens are valid, and called on countries to ensure that the U.N. tax convention currently being negotiated "delivers robust tax transparency standards."
"Countries should collaborate to combat tax abuse by the ultra-rich, a challenge addressed in another strand of literature," reads the report. "A straightforward starting point for combating this form of tax abuse in the context of a wealth tax is the implementation of full beneficial ownership transparency, at least within the country itself."
While a number of G20 finance ministers have come out in support of a global wealth tax this year, leaders in some wealthy countries including U.S. Treasury Secretary Janet Yellen have refused to back the proposal.
"The vast majority of countries are currently working on what can be the biggest shakeup in history to global tax rules, to end the scourge of global tax abuse by multinational corporations and the superrich. But a minority of rich countries still seem to be holding back from support for a robust framework convention on tax," said Alison Schultz, research fellow at TJN and co-author of the report. "This needs to change now—the climate can't wait, and nor can the people of the world."
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The Younger Wealthy’s Alternative Approach to Investments Doesn’t Extend to Taxation
But both the younger and older rich want to pay as little as possible in taxes on the income their investments—in whatever category—end up creating.
Aug 17, 2024
Enormously rich people tend to get bored easily, especially those on the younger side. Stocks and bonds, such a yawn. Wealthy Baby Boomers certainly do still get a kick out of watching their financial portfolios fatten. But their Millennial and Generation Z counterparts have an added expectation. The fortunes they’re investing, they’re expecting, will be filling their lives up with fun.
And what could be more fun than collecting classic cars! The ageless-auto “alternative asset class,” the Knight Frank Luxury Investment Index documents, has nearly tripled in value over the past decade. And investors in classic cars can even get to drive their investments!
Private equity fund managers, not surprisingly, are plugging themselves into this classic car frenzy. They’re doing their best to make investing in classic cars an effortless pleasure. Wealthy car collectors, thanks to their efforts, no longer need to bother checking under the hood of classic Bugattis and Ferraris. Private equity firms will arrange all that tiresome checking for them.
Billionaire and billionaire-wannabe fund execs are shelling out much more than ever before on candidates they’re counting on to keep our tax code rich people-friendly.
These private equity firms, notes auto analyst Benjamin Hunting, are buying up veritable fleets of fine autos they see as likely to appreciate strikingly over time, then offering deep pockets an opportunity to invest in these collections of classics. In return for providing this opportunity, private equity execs typically collect a 2% annual service fee and then claim 20% of the profits the sale of the cars eventually produces.
The classic car-loving investors, meanwhile, get to share the rest of the profits, on top of the joy rides some of the classic car funds invite them to take in their “alternative asset class” investment.
How secure as an investment do classic cars rate? An “elite automobile storage boutique” industry has emerged to make sure stashed-away collectible cars don’t get either scratched or stolen. One such outfit, the Vault in San Diego, uses biometric scans and personalized access cards “to guarantee that only owners, or their designated representatives, can get anywhere near luxury vehicles.”
Not all the Millennial and Gen Z super rich, of course, have taken the dive into classic car investing. Plenty of the wealthy in these age cohorts are flocking to other alternative investments, everything from fine wines and watches to sneakers and crypto. The overall “alternative asset” category, notes a new Bank of America study, has an amazing 94% of wealthy 43-and-unders interested in it.
This Bank of America Study of Wealthy Americanssurveyed 1,000 deep-pocketed adults of all ages and found that 73% of those not yet 44 years old consider themselves “skeptical” of any investment strategy that has them investing only in traditional stocks and bonds.
The wealthy who took part in the new Bank of America survey are all sitting on at least $3 million in investable assets. The younger ones among them turn out to have less than half their investable millions invested in traditional stocks and bonds. Their older counterparts have three-quarters of their investable assets in these classic categories.
The younger rich, the Bank of America study goes on to show, have almost a third of their fortunes in crypto currencies and other alternative investments like classic cars. The older rich have just 6% of their wealth sitting in these alternate asset classes.
But both the younger and older rich do share one intense investment fixation: Both age cohorts want to pay as little as possible in taxes on the income their investments—in whatever category—end up creating.
Under current federal tax law, profits from the buying and selling of assets, traditional and alternative alike, face a significantly lower tax rate than paycheck income. The top combined federal tax rate on ordinary paycheck income now runs 40.8%. But income from capital gains—the income from buying and selling assets—only faces a top 23.8% overall tax rate.
Private equity fund managers have an even lusher loophole—the so-called “carried interest tax deduction”—they will go to any lobbying lengths to forever preserve. This loophole, note analysts at Americans for Financial Reform, “allows private equity and hedge fund executives—some of the richest people in the world—to substantially lower the amount they pay in taxes.”
The loophole lets these fund execs “claim large parts” of their compensation for services rendered “as investment gains.” Ending this carried interest loophole could raise billions in new revenue.
To make sure that this ending doesn’t happen, private equity and hedge fund execs spent $547 million on political campaign contributions in the 2020 presidential election year cycle.
In the current cycle, just 11 private equity billionaires all by themselves have so far pumped over $223 million in contributions to congressional and presidential candidates, an amount that more than doubles, notes the Center for Media and Democracy, what moguls from 147 private equity firms plowed into political campaigns back in the 2016 election cycle.
In other words, billionaire and billionaire-wannabe fund execs are shelling out much more than ever before on candidates they’re counting on to keep our tax code rich people-friendly. For America’s richest, no big deal. They can easily afford these gargantuan political campaign outlays. And they also consider these outlays money exceedingly well spent.
Takes money, as the rich like to say, to make money. The American way! We need to change it. One place to start: passing the pending Carried Interest Fairness Act, legislation that U.S. Sen. Sherrod Brown (D-Ohio) has introduced to eliminate the tax loophole that only “wealthy money managers on Wall Street” could love.
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