America's billionaires pay an average income tax rate of just 8.2%
cbsnews.com
cbsnews.com
I mean, we probably should be paying higher taxes too, but we could at least have the intellectual honestly to talk about the cohort that actually pays huge income tax bills (educated workers in HCOL cities) instead of gesturing at billionaires who have nothing to do with the income tax scale.
If anything, taxing billionaires should help lower the burden on labor aristocrats. The real issue is government having a monopoly on tax revenue and not pushing a penny far enough.
>The real issue is government having a monopoly on tax revenue
No the real issue is government having a monopoly on money, and the money supply, combined with not having any actual constitutional limits on spending.
Spending is the root cause problem here.
Because I hear about adding a new higher bracket, and/or taxing wealth, raising the inheritance tax, an AMT for capital gains, etc.
There are lots of things we can and should be doing to ensure that high-income tech workers won't have any trouble affording a home in San Francisco, but taxing them less isn't on that list.
How about removing expense deductions (all of them) from tax code? Or making deductions count only against the same source? What negative effects can that have?
Average workers holding stocks then would not get taxed until they sell their stock. Those borrowing against the value of stocks using the strategy you mention would be taxed at a specific rate while the loan exists.
Perhaps that's too difficult or affects average people as well. The other option as another poster points out is to remove tax deduction from specific assets or cap the deduction.
So what? The loan has to be paid back one way or another. Any time person sells his can of soda to pay that loan they pay taxes on those realized gains. If they used the loan money to create new business created new profits and paid the loan without selling the can of soda that even bigger win win as they created new wealth that made everyone more rich, paid more taxes, paid the loans as well. Not to mention when the can of soda is sold in future government can stil earn more tax revenue.
It almost makes me thing people hate others for being wealth and somehow want to see them getting hurt rather than promiting a sensible low tax policy. Isn't the world better off because Bezos or Musk can borrow against their equity and create new companies rather than handing that money over to federal government ? What possible good can come out of giving more money to federal government ?
The alternative that would "fix" this is if you bought a soda you'd have to gradually pay taxes as the market value goes up and down. Or if you're worried about losing out on tax revenue when your kids inherit your soda collection, you could remove it limit the cost basis step up
Our situation clearly is very far from ideal, but that only makes the ideal more important to define and restore in my estimation. As far as I can tell, healthy stock exchanges have three purposes:
1. Facilitate mutually beneficial exchange between entrepreneurs with creativity and investors with capital.
2. Determine the value of competing businesses and assets through active, decentralized trading and aggregate speculation, effectively churning the standings and keeping score.
3. Induce transparency by opening corporations' dealings to the public, inseparably tying corporations' actions and plans to their valuation.
When the market is healthy nobody is in command, the market is distributed, the game is competitive, fair regulators arbitrate minimally, traders' churning keeps score, failure-capable corporations are responsive to public pressure, and new competition with fresh ideas can enter the market competitively. Brilliantly, it's an ecosystem powered by greed and insured by selfishness, the basest and most reliable of human emotions - the animal root. Yet the ecosystem is delicate, reliant on all those elements being in place and functioning.
Save the traders' churning like a system clock, everything else in the US market is broken or corrupted in one way or another. Corrupt government meddling picks winners, the market centralized, there is collusion, the regulators are captive and incestuous, corporations which control public opinion are too big to fail, and new competition is consumed by the established corporate giants or crushed underfoot.
Now to get back around to your question, stock is special because it's the only part of the market still functioning properly and it isn't exactly money, but value equivalent to a percentage of the company. Stock shares abstractly tokenize the ownership of a company and their nature is volatility in varying degrees. Aggregate speculation driven by share trading is the most efficient and accurate model we've developed to evaluate "all the things" and it serves the same function as a heartbeat or a system clock cycle. Taxing that trade in the market's current fucked-sideways status would be disastrous. Think: making a 46yo cheeseburger enthusiast run wind-sprints in pads on a Texas summer day or overclocking a minitower with a GT 430 that hasn't been cleaned once in the 10 years it's spent on a chain-smoking Brooklyn Taxi Cab accountants' office floor - levels of disaster.
I don't get how taxing "income from stocks" would work. Suppose you buy a stock at $100 and it go up to $200. Do you pay taxes on $100 because that's "income", even though its just a number. If its 30%, I would have to sell 15% of my stock, which would also trigger capital gains tax.
This gets even crazier when people own private shares and there's no clear cut market value. This essentially would amount to you having give up your company. If you grow your company by 20% a year, at a 30% tax rate, you'd essentially give up 5% of your ownership every year just to pay taxes (someone please correct me if my math is wrong).
I think it makes sense to tax actualized gains at the point of sale. There's tricks you can get around selling by borrowing at very low rates with your stock as collateral but that's a separate issue. At best we shouldn't be giving preferential tax treatment for debt financing
Some places use this system, I believe there is talk of implementing it in New York State. The biggest problem occurs in situations like the dot-com bust, where an asset appreciates, and taxes are owed on those 'gains', so the individual takes out a loan to pay the taxes, and in the meantime, the asset drops in value. Individuals in this case may be forced to declare bankruptcy because of the taxes on an asset which rapidly fluctuated in value.
Suppose you buy a house (or land) for $100,000 and it increases in value to $200,000. Do you pay taxes on [the] $100,000 [gain] because that's "income", even though it's just a number?
Why yes, yes you do.
Feel free to argue that buying real estate is a different kind of capital holding than buying stocks. There are some plausible cases to be made for it. But let's not pretend that there's no precedent for taxing unrealized capital gains.
But it's a good point, wealth taxes are very doable for things that you can't easily hide from the government.
Georgists of the world, unite!
Those taxes are a percentage based on the value of your home. It's real estate taxes. No one considers this "income" and is not taxed as such. If you want a wealth tax, you can do something like this. But let's not play games and say I "made" 100k because my house appreciated 100k and I'm somehow skirting taxes by not paying taxes on that 100k. It's incredibly dishonest to say people with unrealized capital gains "made income" and they're getting preferential tax treatment on that "income"
> Reassessment and its effect in property taxes
> Conducting a reassessment does not mean that your assessment or your taxes will automatically increase. Your taxes may increase, decrease or stay the same.
> Over time, market value of properties change. The value of some properties may increase, while the value of some properties may decrease. Frequent reassessments ensure that your property is assessed based on current market values, rather than on market values from 20 years, like the example.
> If your assessment increase, it doesn't mean that your taxes will automatically increase. If the increase in your assessment is less than the average increase, your taxes will actually decrease. For example:
> If, your assessment increased by 12% and the average assessment increase was 15%, then your taxes will decrease (assuming your school and municipal budgets remain stable and the tax levies do not increase)
That's because your actual taxes depend on the "millage rate" (i.e. dollars of tax per dollars of value) which can be adjusted at every budget cycle. That's equivalent to lowering (or raising) the capital gains tax - just because you realized $100k in CG every year, "your taxes may increase, decrease or stay the same".
Are you mistaking property taxes for something else ? Property taxes are imposed on property value and have nothing to do with the gain or loss in the value of the property.
But if you want to apply the same parallel to stocks then I think we should call it 'wealth tax' rather than anything to do with income and do not tax the gains (realized or otherwise) but the total value. So if you buy a stock worth $100 and it is $50 next day you still pay $0.5 as taxes even though you might have lost money. I do not think that is a good idea but that would be somewhat consistent with property taxes.
I don’t understand what you’re trying to say here. If the value of your property goes up you pay more in taxes. Of course property taxes have something to do with the gain or loss in the value of the property. The relationship is in fact direct and unambiguous. (I think people are just getting caught up on the article's use of the word, "income," which was indeed well-poisoning from the start.)
Which is not same as taxing the unrealized gain. Property tax is a wealth tax and not any kind of income (or gain) tax.
You do not.
> Why yes, yes you do. [...] But let's not pretend that there's no precedent for taxing unrealized capital gains.
I think you may be confused; that's not how capital gains taxes work in the US (or anywhere else I'm familiar with offhand.)
(I assume you're not trying to conflate property taxes and capital gains taxes, because comparing a tax on a stock versus a tax on a flow like that would be quite silly. But if you are doing that, then I'd suggest making the argument explicit, and also providing some pretty extensive justification, because that's going to be a hard mountain to climb.)
Why is it an inappropriate analogy?
You're paying a higher tax because you possess an asset whose value increased, even though you've realized none of the gain.
That's pretty obviously the point being made here.
If OP wants to suggest a tax on (realised) income, then, well, we already have that. There's not a lot to debate here.
If OP wants to suggest a tax on unrealised income, that's a pretty silly idea with enormous practical obstacles. Also, it is fundamentally not a wealth tax. It is different in every particular; one is a tax on a stock, and the other is a tax on a flow; they are charged at different times, on different things; if an asset declines in price, the wealth tax levy declines, whereas an unrealised gains tax would...what, have to issue tax credits to be carried forward? The whole thing is unworkable.
(And even if it was workable, it would be in principle and in effect, vastly different than a wealth tax.)
And the analogy to property taxes is a good one. You pay more in taxes when your property increases in value. If the value goes down it'll be reassessed and you'll pay less. And this repeats year after year.
Now, look, you can think that's a good system or you can think it's a bad one. But it's not some esoteric, inscrutable concept.
If you own 10,000,000 in stock today you could be assessed a tax of 50,000 on it today. Next year it's worth 20,000,000 and you would owe the same rate, 100,000. If it went down to 5,000,000 you'd still owe 25,000 in taxes.
The goal is not to tax income if it exists but to excise a tax on wealth itself. Like a property tax.
It has nothing to do with gains, realized or otherwise. Think of it like property taxes on a home. If the market crashes you still owe taxes. They may be less if the value is reassessed, but you don't get to skip the bill.
Lets' think on the scale of the individual first: say this hypothetical person has 50 grand in stock options from their company. It's not a ridiculous number, perhaps they've been sitting on it for 5 years or so, building a nest egg. Say they've got liquidate stock to pay a 5% on that wealth amounting to $2500.
In systems this complex you've got to play out the cascading effects, your first, second, and third order effects. It's the most complex game in the world, balance patches are tricky.
First Order problem: Liquidating $2500 in stock costs more than $2500 in stock, the share price will drop once supply floods the market. This sucks for this hypothetical worker... but this is a far larger problem than just them.
It's not just Mr. Hypothetical, everyone has to pay taxes on their stock.
Second Order problem: A significant percentage will not have the liquid cash to pay these taxes and will have to liquidate their stock. We'll have a stock market crash every April, I guarantee it. Everyone's liquidation will further devalue others' stock.
Third Order problem: the wealthiest and most solvent will plan for this - it's what they do. They'll treat this like a circa 2011 Steam Summer sale and buy everything... and I mean Everything. This hypothetical tax law designed to spite them is the greatest favor possible.
I know what we'll call it: "The Running of the Bears".
The biggest thing about a wealth tax is that it's like the estate tax. The goal is to prevent the accumulation of most of the wealth in the economy by a small number of people, and it can be thresholded to target them. A 50k nest egg would be well below it, the numbers I think are "fair" are closer to $10 million than $50,000.
As for the mechanics of paying the tax, your first and second problem have the same solution. When you buy a house for example your property taxes are due every six months, so to avoid the hazard of not having the cash when they're due you pay into an escrow account every month (there are more details like covering the unpaid tax when transferring ownership, but whatever). One could require brokerages to provide this service, but I don't think anyone with $10 million in liquid assets is unable to come up with the cash.
A second problem is what kinds of assets can incur the tax, for example a startup might have $100 million in valuation with two founders in control of 50% of the company and they obviously don't have the ability to liquidate the business for 5% of their $25 million in wealth. I can think of a couple of ways to solve this, one being a tax deference, or graduated tax based on age of the asset (in this case shares in a recently founded company), a tax asses on the asset itself much like a home. This could create loopholes for holding companies but I'm sure someone can find a way around it.
Personally, I find the strongest argument your third. The wealthy will find a way around it. I think we can be smarter about how we assess taxes to ultimately achieve the same goal. For example, hedge funds (which only the uber wealthy can buy into) can be taxed directly and the second order effects of that tax will be quite similar to a wealth tax, without all the mechanical problems. A federal property tax might be a solution.
I don't have all the answers, all I know is that I pay what I think is a fair amount of tax on my income and assets and think it's absurd that we have an tax system that in its current form will beget a new aristocracy.
Obviously the answer there is "no", but I can't come up with a logical distinction
Why? Why is that "the goal"? And more importantly, why is that a good goal?
Wealth tax just doesn't make sense when accounting for the fact that billionaires choose to own portions of companies. As a "solution", it's just not thought through
It eventually boils down to what is the principle underlying that taxation. If the principle is "I need your money and I am going to take it any ways because I am the government" then any logic goes and I feel that is where the current atmosphere is.
The question we should be asking is why should we pay anything to the government. Us government by some estimates spends $24B every single day. This is just spending what took many folks years and lifetimes to earn. What value will the citizens get for every additional dollar that government gets ? My bet is we will get increased regulation, mafia styled politicians and overall misery.
On other hand every extra dollar you leave in the hands of likes of Bezos or Musk will go into fueling more innovation, industry and job. I think it is a terrible idea to tax the very fuel that increases the size of your economy.
There are a lot of loopholes that should be closed.
Let's say your parents buy an asset and you inherit it when they pass away.
Logic says that if you eventually sell that asset, the appreciation is the difference between what your parents paid for the asset and what you made from the sale.
However, a tax loophole resets the value of the asset to what it was theoretically worth when your parents died, which renders nontaxable the capital gains that occurred during their lifetime.
What would you suggest for stocks that have unrealized gains that are put into a trust for a grandchild (or great-grandchild), circumventing inheritance taxes to some extent, and that are, perhaps, never sold except to rebalance the portfolio?
There are any number of (largely legal) 'tricks' for avoiding taxes and maximizing intergenerational wealth accumulation. Leaving unrealized gains untaxed just makes the whole mess worse.
All income is “just a number”, and taxes are assessed on value of non-cash, non-investment income, so the fact thar unrealized gains aren't cash isn't a fundamental limit.
> If its 30%, I would have to sell 15% of my stock, which would also trigger capital gains tax.
If you are taxing capital gains as normal income even when unrealized, that would presumably replace existing taxes on (only realized) capital gains at (for long-term gains) a more favorable rate. Taxing unrealized gains/losses annually would negate the principal fairness rationale for favorable treatment of long-term gains in a progressive tax system (that it avoids overtaxing gains realized in one year but earned over several.)
Of course, you can acheive a very similar effect more simply by taxing realized gains as normal income and making reasonable allowance for advance and deferred recognition of income, which neatly avoids trying to define the time and mechanism of valuing unrealized gains/losses (time being an issue for any asset, and mechanism being an issue for anything that doesn't have a clear market value.)
There is probably some value in taxing unrealized stock gains. If you purchased Google stock via options at the IPO, and have still yet to sell it, it would be reasonable to consider a portion of that profit locked in, and somehow tax it. It would be complicated, and challenging, but leaving that stock entirely untaxed until it is sold or inherited incurs different problems.
It is not media companies creating clickbait headlines to induce outrage and get clicks. In this case, it is the President using taxpayer resources to mislead the public. While the former is problematic, the latter is far worse as it reduces trust in the whole system of governance.
Perhaps, but I can't think of any policy remedy that would prevent this. Leaders have made misleading statements to their people since time immemorial. It is incumbent on us to develop our critical thinking skills so we can call those leaders out on their misleading statements (as you are doing here), and allow that understanding to impact who we support and elevate to those positions of leadership.
It's not okay if someone lies or Miss leaves just because it furthers your sides political agenda
I don't have the answer to that question, but let's compare it to the median American household, for which numbers are available. The median family's net worth[0] in the US is about $120k, and the median household federal tax burden[1] is about $10k per year, which coincidentally equates to an 8.3% annual wealth tax.
If billionaires were paying 8.2% of their net worth in tax every year, I think people would find the system a lot more fair than it is today.
[0] https://dqydj.com/average-median-top-net-worth-percentiles/
[1] https://www.propublica.org/article/the-secret-irs-files-trov...
This leaves significant portions of their effective taxes off the table.
[1] https://www.cbo.gov/sites/default/files/cbofiles/attachments...
1. The business cannot absorb the levied tax into its overhead and shuts down. Production and operations cease. Said business doesn't buy materials or supplies, workers become unemployed, and customers do not shop. Result: a net revenue loss in sales, payroll, and income taxes.
2. The business can absorb the levied tax into its overhead... which is then offloaded onto the consumer whose buying power and standard of living decreases.
Follow the money long enough and you'll find most taxes are paid by the individual consumer in roundabout and convoluted ways.
I take it you didn't look at the link I posted. The entire field of economics would disagree with you.
Part of the cost is shifted to consumer, depending on elasticity. The rest is paid by owners. Billionaires tend to own companies that pay tax, money which would otherwise have accrued to the owner.
That is what the CBO report I linked quantifies.
- though I didn't mean to imply that the entire tax gets offloaded downstream. That was clumsy.
My point is that taxing corporations without inordinately harming their employees and consumers' standards of living is impossible. Even worse, it grants a competitive edge to established corporations over lesser competing firms, which lack the connections or resources to navigate that tax code as efficiently.
It just isn't healthy for the market or effective at its purpose. If we're serious about maintaining healthy competitive markets and a public with purchasing power, we should consider different options.
And there's political reasons - corp tax is popular with the masses even if it's inefficient.
I argue with my friends that tax rate is less important than turn over rate. My spending is someone else's income, so with enough generations of spending/income all the money becomes 99.999% the government's.
Eg: I pay $1 to my friend, he pays 20c tax and keeps 80c. Then pays back to me 80c. I pay 16c tax and keep 64c. pay it again, 12.8c tax, keep 51.2 --> in 3 generations we're already at nearly 50% tax.
This doesn't make sense. The govt spends all the money they take in (and then some) back to the private sector. It's paid in SS, payrolls, purchases, services.
Your example ignores that the govt spends that 20c tax you listed on police, goods, social security, wages, etc, along with some borrowed from markets, so in practice the govt ends up with negative money, which is called the national debt.
Removing the long term investment incentives (Long term capital gains) and introducing a penalty for not spending it during your life time (Estate tax) is how you ensure even those avenues of protection are gone.
I don't know if you think that 42% of Americans paying no federal income tax would be a sufficiently small percentage that the criticism of billionaire tax rates would suddenly become valid, but it's worth pointing out that 58% of Americans therefore would be paying these taxes and would constitute a majority of the voting public.
[0] https://www.cnbc.com/2021/08/18/61percent-of-americans-paid-...