Some of you might remember that, prior to the Trump tax cuts for the rich in 2017, you were able to claim a personal exemption on your taxes that eliminated income tax on the first $4,050 in income ($8,100 for couples).
It was a big help to many of us, but Trump did away with the personal exemption for working Americans as part of his scheme to fund giant tax breaks for those at the top. Thanks to that law, many of the richest Americans are now paying almost nothing in taxes, while millions of regular Americans struggle to get by.
Some politicians, like the current head of the National Republican Senatorial Committee Rick Scott, want to make those struggling Americans pay more, so that they have “skin in the game.” But do you know who really don’t have skin in the game? Billionaires.
So, how do we make billionaires pay while also providing much needed tax relief to working Americans? One answer is Senator Wyden’s Billionaire Income Tax.
White House economists calculated that the wealthiest 400 American families, almost all billionaires, paid an average effective federal income tax rate of just over 8% between 2010 and 2018 when the income from the appreciation of their stock portfolios is taken into account. The average income tax rate for all taxpayers was 13.3% in 2018.
This means most billionaires are paying far lower effective tax rates than teachers and firefighters. That’s largely due to the way we tax capital gains. No matter how much these billionaires gain in “wealth” from their investments, they owe taxes on none of it unless they sell the investments, and even then it’s taxed at almost half the rate that other people are taxed on their paychecks.
This leads to many billionaires using a shady yet perfectly legal tactic nicknamed “buy, borrow, die”: They let their stocks skyrocket, use them as collateral to take out large low interest personal loans so they have cash to spend on yachts and private jets, and declare very little (or even negative) actual income for the year. Then, thanks to the stepped-up basis loophole and our unwillingness to either tax inherited wealth or plug the gaping loopholes in our estate and gift tax law,, they can pass those assets at death without them or their beneficiaries ever paying a dime in taxes.
Senator Wyden’s Billionaire Income tax would make billionaires pay tax on their increased wealth each year whether they sell their assets or not, the same way workers pay taxes each time they get a paycheck. The tax would apply only to taxpayers whose net worth either exceeds $1 billion or whose income exceeds $100 million for three consecutive years. There are about 750 American billionaires, according to Forbes magazine, so this would impact only a small amount of absurdly wealthy households.
The Joint Committee on Taxation estimates billionaires would pay an additional $557 billion in tax over the next ten years under the Billionaire Income Tax, or about $56 billion per year. That’s a lot of taxes, but it’s no more than the taxes billionaires have been dodging all along. According to ProPublica, three of America’s richest billionaires, Jeff Bezos, Elon Musk, and Michael Bloomberg, each recently went an entire year without paying income tax, even though their wealth has been skyrocketing.
There’s a lot we could do with an additional $56 billion per year in tax revenue. One possibility: give regular Americans a tax break. With a few offsetting changes to the current tax brackets, we could funnel the revenue from the Billionaires Income tax to provide a personal exemption of $4,550 per taxpayer, the net benefit of which would flow largely to households making $50,000 or less ($100,000 for married couples). When you add that to the standard income tax deduction, it means the first $17,500 of income for single taxpayers and the first $35,000 of income for married taxpayers would be income-tax-free. It’s pretty much impossible to live on $17,500 if you’re single (or $35,000 if you’re married), but under our current laws, we still expect people struggling to get by to pay income taxes.
It really comes down to this: Our politicians have a choice. They can give a much needed tax break to millions of working families, or they can let 750 billionaires continue to avoid paying their fair share.