ProPublica recently reported on a “trove of IRS data” that showed “the incomes and tax rates of the 400 Americans with the highest incomes from 2013 to 2018.”
“First, for the scale, it’s the typical American’s income versus what it took to get into the top 5%, for example, a primary care doctor’s salary, or the top 1%, such as the earnings of a partner in a successful law firm,” they said. wrote. It was $40,000 to at least $198,000 to at least $485,000 per year. And none of this comes close to great wealth.
To make the top 400 list, that meant an average annual income of $110 million per year, excluding even the most prominent figures in sports and entertainment, who are relatively wealthy, but not as loaded as those who happen to be. at the top of the economic pyramid.
Wealth taxation has become a popular topic among many, including DC politicians. It looks like the elected officials are finally doing something and trying to even out the massive playing field that separates most of the population from those who are wealthy. But those who follow such things realize that this is very unlikely to happen. Not just because of the billions poured into election campaigns that politicians want to keep attracting. (According to the Center for Responsive Politics, in the decade immediately following the Supreme Court’s decision in Citizens United, which opened the floodgates to political spending, the top ten donors and their spouses alone invested $1 .2 billion dollars in federal elections (not counting all that they spend on state elections to protect their personal interests.)
Besides credit card influence, there are practical issues. Wealth at this level primarily involves non-cash assets which are generally not taxable until sold. Trying to decide what all of this is really worth would be a monumental tax. Then there would be the squabbles over assessments, even if you could first agree on taxes. Legal challenges would take years with people with vast resources able to mount such a defense that the specific government budgets, time and personnel available to follow would be inadequate.
There is another approach that might work much better, taxing what the rich borrow. As ProPublica notes, many extremely wealthy people are getting loans, using their wealth as collateral. The average person might wonder why they would do that with enough money to buy practically anything they want. It’s because the rich have a different approach.
They are looking for limited income because they are taxable at high rates. Instead, they minimize the money that would be taxed at regular rates because they would pay the maximum rate of 37% on anything they couldn’t clear with technical losses in investments.
Instead, the rich borrow. They know there’s a big difference between paying the lowest rates available for borrowed money — even now, probably well below 2% because they’re such good risks — and the high end of taxes. . There is also the growth in the value of their investments that exceeds the cost of borrowing, so they want to keep the assets.
So they borrow money, use it, then when the loans come due, they refinance into another loan and keep going until they die. Then there are loopholes that allow heirs to minimize if not completely eliminate taxes they or they owe on the inheritance. For example, in the tax code there is what is called a progressive basis. When the person holding the property dies, this can be revalued to current values, thereby erasing any gains made over the years and treating them as a fresh start for the heirs, who now have assets that haven’t technically gained in value and are therefore not taxable. A whole racket.
Instead, let’s try a different solution: tax borrowing. The tax system might even give them a credit on the interest they pay while getting a huge amount of tax that would otherwise be avoided. There is no question of valuing the assets because they do not come into play. If they use the system to withdraw money without selling assets or paying taxes on the gains made, then tax them about this maneuver and the value they derive from it.
This could apply to lending against cash, buying real estate, etc. A reasonable limit would allow average people to do something like withdraw money from the value of their homes without being taxed, since these are the people who already pay a large percentage of tax, unlikely effective single digit rates calculated by ProPublica so many rich people like Elon Musk or Warren Buffett do.