Despite a deep recession across America, and historical poverty and unemployment numbers, the high … [+]
Corbis via Getty Images
As Democrats wrangle over spending bills and how to raise money, one idea has popped up and not for the first time. Create a wealth tax for those at the very top of the economic ladder. Billionaires that pay federal individual income tax of only 8.2%, according to a Biden administration analysis, pay less as a percentage of their income than a good many households.
“This disparity is driven largely by the way our tax code treats income generated from wealth—that is, income from assets like stocks that increase in value over time,” the report says. Which is true. Here’s a point from a June 2021 Pro Publica piece that published information about how little the ultra-wealthy pay in taxes that backs this up:
Many Americans live paycheck to paycheck, amassing little wealth and paying the federal government a percentage of their income that rises if they earn more. In recent years, the median American household earned about $70,000 annually and paid 14% in federal taxes. The highest income tax rate, 37%, kicked in this year, for couples, on earnings above $628,300.
The confidential tax records obtained by ProPublica show that the ultrarich effectively sidestep this system.
Let’s take a simple example. You earn $1,000. So does an ultra-wealthy person. Your tax rate is 18%, while the other person pays 8.2%, so you have a net of $820, while the wealthy person has $918. We’ll pretend that it’s the only time you pay tax is on the initial amount.
You both put the money into a special interest-bearing account that offers compound interest of 4%. In 20 years, the amount you have is $1,796.72. The other person: $2,011.45.
More realistically, the very wealthy person might have had $100,000 compared to your $1,000. The amount after initial taxes would be $918,00. And after 20 years, $201,145.10.
Still over simplified. The average person might not be able to leave the money alone for all that time. The wealthy could keep adding, building that nest egg into massive amounts that you or I would never be able to match.
This is why the concept of a wealth tax on the most well-to-do gets such attention. “Make them pay!” So loud, you can almost hear the echoes from …….