Biden’s proposals would fix a tax code that coddles billionaires – ITEP
Billionaires can afford to pay more of their income in taxes than teachers, nurses and firefighters. But our tax code often allows them to pay less, as evidenced by the last talk ProPublica reporters using IRS data.
According to their calculations, Betsy DeVos, Education Secretary under former President Donald Trump, received an average of $112 million in earnings each year from 2013 to 2018 and only paid 10.6% of that amount in federal income taxes. Facebook CEO Mark Zuckerberg raked in an average of $652 million a year during that time and paid just 13.7% of that in federal income taxes. Republican megadonor Charles Koch earned an average of $213 million and paid 16.5%.
Middle-income earners often pay more than that when you consider both federal income tax and federal payroll taxes that barely affect the wealthy. ProPublica reporters found that in recent years, a typical single person earning $45,000 a year would pay 21% of their income in federal income and payroll taxes, while the comparable effective tax rate for 15 The wealthiest Americans was lower, at just 20%. In other words, the federal tax code contributes to inequality by allowing the wealthy to keep more of their income than everyone else.
It’s getting worse. A previous The ProPublica study found that the effective federal tax rates paid by those at the top are much lower when you use a more realistic definition of income. For example, Jeff Bezos’ net worth increased by $99 billion during the time period reviewed by ProPublica reporters because his stock’s value increased so much. But his income as defined by the tax code was only $4.2 billion. Economists consider Bezos’ $99 billion in asset appreciation (also known as unrealized capital gains) as income, but our current tax rules don’t, so it’s not taxed. When you include those unrealized capital gains, the 25 Americans with the highest net worth paid just 3.4% of their income in federal taxes from 2014 to 2018 according to ProPublica reporters. Using the tax code definition of income, those same 25 Americans paid only 16% of their income in federal taxes.
The first problem Congress needs to address is that so much of the wealthy’s income is unrealized capital gains that are not taxed at all. President Biden, Senator Ron Wyden of Oregon and Rep. Jamaal Bowman of New York have all offered plans that would fix this problem by taxing at least some of the unrealized gains of the wealthiest Americans. The proposals differ in detail, but all would point us towards a tax system that forces the wealthiest to pay taxes on their income every year like the rest of us.
The second problem is that even when the rich pay taxes, US tax laws allow them to pay lower rates on their capital gains and stock dividends. According to ProPublica’s analysis, that includes many tech titans and heirs to the Walton and DeVos fortunes, whose income comes from selling stocks and receiving dividends rather than from work. President Biden is proposing that taxable income over $1 million be subject to the same rate as any other income, even if it includes capital gains and dividends which are subject to the lowest rates today.
Congress should take up these proposals, but some lawmakers want to go in the opposite direction. Senator Rick Scott, chairman of the National Republican Senate Committee (NRSC), released a GOP platform in February suggesting that the federal tax code is not collecting enough from the bottom 60% of Americans, especially bottom 40%who earn about $45,000.
While this notion rightly strikes most Americans as bizarre, Senator Scott suggests that millions of low- and middle-income people don’t have “skin in the game” because they don’t pay taxes. on income, even if they are working and paying federal payroll taxes or are retired and have paid income and payroll taxes during their working lives. Senator Scott’s proposed agenda for the next Congress would eliminate much of the earned income tax credit and child tax credit going to the bottom 60% of Americans.
Of course, a few wealthy people who could afford to pay federal income tax manage to avoid it, such as donald trump for many years, but it is not clear whether Senator Scott would include it in this category.
Rather, Senator Scott’s concern seems to be that the non-wealthy are not paying enough federal income taxes. The reality is that other taxes, such as federal payroll taxes and many state and local taxes, take a biggest bite low- and middle-income budgets than the wealthy.
Members of Congress have a choice. They can decide that Senator Scott is right and that the real problem with our tax system is that the bottom 60% of earners get off too easily. Or they may decide that people like Betsy DeVos, Mark Zuckerberg and Charles Koch should pay at least as much as middle-income workers. For most Americans, the answer seems obvious.