Perspective: The Case for Millionaires Paying Higher Taxes
Text: Abigail Disney, an award-winning documentary filmmaker and activist, along with Morris Pearl, former managing director of BlackRock and current chair of Patriotic Millionaires, offer their insights on the pressing need for tax reforms in America. Both are members of the Patriotic Millionaires, an organization that advocates for higher taxes on the wealthy.
Often regarded as a stressful event, Tax Day in America is a non-event for many of the country's wealthiest citizens. This annual deadline serves as a stark reminder of the tax privileges enjoyed by the ultra-rich, who often benefit from larger loopholes and sometimes lower tax rates. The wealth of billionaires has grown by over $1.5 trillion in recent years, contributing to increasing wealth inequality.
This pattern is not just unjust but unsustainable, as it threatens the stability of our economy and democracy. To address this, the nation needs to ensure that the ultra-rich pay their fair share in taxes.
Three changes to the tax code could help achieve this goal:
Firstly, the tax system undervalues hard work by taxing salary income at a higher rate than passive capital gains income. This disparity should be addressed.
Secondly, inherited wealth enjoys significant tax advantages. For instance, under the 2017 tax law, the first $12.92 million of inherited wealth (or $25.84 million for married couples) is exempt from estate tax. Additionally, the stepped-up basis loophole allows wealthy families to wipe out millions in capital gains taxes. This facilitates massive wealth accumulation with minimal tax contribution. A reform is needed to treat inherited wealth as income, removing these loopholes and ensuring a fair taxation.
Lastly, the definition of taxable income needs to be broadened. Many ultra-rich Americans accumulate wealth through assets, not income, and they use these assets to secure loans at low interest rates. Consequently, they declare little or no income for taxation purposes. To address this, the unrealized capital gains of the wealthiest households could be taxed, as proposed by President Biden's Billionaire Minimum Income Tax.
Moreover, the tax system needs to distinguish between different levels of wealth. Currently, the top income tax rate of 37% applies to any income over $578,125. This means someone earning $600,000 and someone earning $600 million pay the same proportion in tax. To reflect the vast wealth disparity, the tax system could introduce additional brackets, with a 90% rate for those earning over $100 million annually.
While these changes may not solve all of the country's issues, they could significantly curb the concentration of wealth among a small group of people, promoting stability in both the economy and democracy. An effective tax code could act as a powerful tool for social and economic change.