Biden’s Tax Reform Plan Would Help Billionaires
Billionaires can afford to pay more taxes than teachers, nurses, and firemen. But, as the latest ProPublica exposé using IRS data shows, our tax code often allows them to pay less.
From 2013 to 2018, Betsy DeVos, the former Education Secretary under President Donald Trump, earned an average of $112 million and paid only 10.6% in federal income taxes. During that time, Mark Zuckerberg earned an average of $652 million annually and paid only 13.7 percent in federal taxes. Republicans like Charles Koch made $213 million and paid 16.5%.
Middle-class families often pay more than this due to the federal income and payroll taxes that barely affect the wealthy. In recent years, a single person earning $45,000 annually paid 21% in federal income and payroll taxes, while the comparable effective tax rate for the wealthiest 15% of Americans was only 20%. It allows wealthy people to keep more of their income than the rest of us.
It worsens. A previous ProPublica study found that using a more realistic definition of income lowers the effective federal tax rates paid by the wealthy. For example, during the ProPublica investigation period, Jeff Bezos’ net worth increased by $99 billion due to his stock rising in value. But his taxable income was only $4.2 billion. The $99 billion in asset appreciation (also known as unrealized capital gains) is considered income by economists, but not by our current tax laws. From 2014 to 2018, the 25 richest Americans paid just 3.4 percent of their income in federal taxes, according to ProPublica. By the IRS’s definition of income, those same 25 Americans paid only 16% in federal taxes.
The first issue Congress must address is the fact that so much of the wealthy’s income is unrealized capital gains. President Biden, Oregon Sen. Ron Wyden, and New York Rep. Jamaal Bowman have all proposed taxing at least some unrealized gains of the wealthiest Americans. The proposals differ in detail, but all would move us closer to a tax system where the wealthy pay annual income taxes like the rest of us.
The second issue is that even when wealthy people pay taxes, they can deduct capital gains and stock dividends. This includes many tech titans and heirs to the Walton and DeVos fortunes who earn money from selling stocks and dividends rather than working. Even if it includes capital gains and dividends, President Biden proposes taxing income over $1 million at the same rate as other income.
These ideas should be taken up by Congress, but some lawmakers oppose them. President Donald Trump has criticized the federal tax code for not collecting enough revenue from the bottom 60% of Americans, particularly the bottom 40% who earn up to $45,000 per year.
The idea that millions of low- and middle-income people don’t have “skin in the game” because they don’t pay income taxes, even if they work and pay federal payroll taxes, or are retired and paid income and payroll taxes, is bizarre to most Americans. Sen. Scott’s proposed agenda for the next Congress would eliminate much of the Earned Income Tax Credit and Child Tax Credit
There are a few wealthy people who avoid paying federal income taxes, like Donald Trump for many years, but it’s unclear if Sen. Scott would include him in this category.
To Sen. Scott, the non-rich do not pay enough in federal income taxes. Other taxes, like federal payroll taxes and many state and local taxes, hit the poor and middle class harder than the wealthy.
Congressmen have options. Maybe they’ll agree with Sen. Scott that the real problem with our tax system is that the bottom 60% get off too easy. People like DeVos, Zuckerberg, and Koch could pay as much as middle-class workers. Most Americans know the answer.