Opinion: Why We Believe Wealthy Individuals Should Pay Higher Taxes
Tax Day in the United States is a stressful time for many, as people rush to file their returns and hope for a refund. However, for the wealthiest among us, it's just another day. This annual event highlights the stark differences in how taxes affect different income groups. The ultra-rich often benefit from larger loopholes and sometimes lower rates, while their wealth continues to grow significantly, with billionaires amassing over $1.5 trillion more in recent years.
This disparity is not only unfair but also unsustainable, threatening both our economy and democracy. To ensure long-term stability and prosperity, it's crucial that the ultra-wealthy contribute more to the nation that facilitated their success. Here are three proposed changes to the tax code to address this issue:
Firstly, the current tax system favors passive income over earned income. Those who work for their money face higher tax rates compared to investors who earn through capital gains. Moreover, inheriting wealth is highly advantageous due to the 2017 tax law, which exempts the first $12.92 million (or $25.84 million for couples) from estate taxes. The stepped-up basis loophole further allows wealthy families to avoid millions in capital gains taxes. This means the rich can inherit vast sums with minimal tax obligations, unlike those who earn their money through hard work.
Why should our tax code impose heavier taxes on workers compared to investors and heirs? Money is money, regardless of its source. As beneficiaries of inherited wealth and investments, we should not be taxed less than those who earn their income through labor. It's time to tax all capital gains over $1 million at the same rate as ordinary income and replace the current estate tax with a straightforward inheritance tax.
Additionally, we must address the fact that many of the richest Americans report little to no taxable income annually. They avoid taxes by using their assets as collateral to borrow money at low interest rates, a strategy known as "Buy, Borrow, Die." This allows them to declare minimal income, resulting in lower effective tax rates than working families. By redefining taxable income, we can tap into the wealth of billionaires that remains untouched under the current system. Proposals like President Biden's Billionaire Minimum Income Tax aim to tax unrealized capital gains, while others suggest wealth taxes on billionaires.
Lastly, we need to tax the ultra-wealthy more than the merely affluent. The current top income tax rate is 37% for income over $578,125 (or $693,750 for couples), regardless of how much more someone earns. To reflect the vast differences between the rich and the ultra-rich, we should return to the higher tax rates of the mid-20th century and introduce additional tax brackets, reaching up to 90% for those earning over $100 million annually.
These changes alone won't solve all our nation's issues, but they would significantly slow the concentration of wealth among a small elite, thereby strengthening our democracy and economy. The tax code is a powerful tool for social and economic reform, and it's time to wield it more effectively.