Equalizing Capital Gains is Essential for Equality

Most working Americans see taxes taken out of their paycheck every other week. Wages are taxed in real-time, while investment growth (from stocks, dividends, etc., ) is only taxed when the investment is sold. On any given year, rich people are not paying any taxes on the majority of any increase in their personal wealth. This is because most of their wealth comes from their investments instead of actual paychecks. Switching to a “mark-to-market” system, which would tax the increase of an investment’s value (called “capital gains”) every year, would ensure that rich people pay their taxes on the same schedule as regular Americans. 

Let’s do a quick run-down on this: investments like stocks, real estate, and other assets allow rich people to comfortably sit back while these to increase in value, and then later sell them whenever they feel like it. It’s a cafeteria system, which allows millionaires to pick and choose when they pay taxes on their capital gains

  • Capital gains: short-term (one year or less) profit from an investment that increases over time. 

Capital gains are key to gaming the system. Most Americans have to work for their money, but rich people’s money works for them. The longer they hold onto these assets, the greater the capital gain – and the longer they skip out on paying taxes on those gains. Essentially, while workers are working every day, rich people are building even more wealth faster.  

Even worse, not only can rich people pick and choose when to pay taxes, they can get around them entirely using the “stepped-up basis” loophole. 

“Basis”: the price the original holder paid for an asset, which is subtracted from the price they sell to calculate capital gains. For example:

  • Joe buys $1 million in stocks that increases to $10 million. Instead of paying taxes on this $9 million gain, Joe passes them to an heir tax-free. 
  • If those stocks are sold the same day, there is a whopping amount of $0 to pay in taxes. If the heir sells the stock at $20 million down the line, then they would only pay taxes on the $10 million in gains since they inherited them, instead of the $19 million since the “basis.”
  • End scene: All the time it took for the stocks to grow ten times in value is wiped away in an instant.

In April, Senate Finance Committee Ranking Member Ron Wyden introduced a mark-to-market plan to finally make rich people pay their fair share. This plan would…

  • Raise taxes for the rich 
  • Eliminate tax deferral 
  • Tax capital gains at ordinary income rate
  • Force wealthy people to adhere to the tax code instead of relying on tax loopholes to increase their wealth

Moving to a mark-to-market system would do away with many of the special perks rich folks enjoy and incentives to hoard wealth. By increasing taxes on the rich, we can start moving to undo some of these insidious inequalities in this country.

Our tax code has given special treatment to wealthy investors for decades, consistently at the expense of all non-wealthy working Americans. The current capital gains tax system is deeply inadequate, inherently regressive, and in dire need of transformative change.. Today, Senator Wyden followed up his proposal with a white paper. That’s why Senator Wyden’s white paper on anti-deferral accounting is so important – this is a key step towards making the wealthy pay their fair share just like every other working taxpayer. The rich shouldn’t receive special tax treatment just because we are rich. Period!

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