ProPublica substitutes a magazine’s estimate of wealth appreciation, which never appears on the stolen tax returns, to falsify income. Using this deception the site calculates its “true tax rate.” ProPublica laments that taxpayers are acting “perfectly legally” in not paying a federal wealth tax, which doesn’t exist.
That wealth is taxed only when converted into income or on death may be an outrage to those in government who want to spend that wealth, but it is a purposeful, enlightened policy that lets wealth work as the nation’s seed corn, making America the richest nation in the history of the world. That wealth in turn makes it possible for the government today to provide $45,000 a year in transfer payments to the average household in the bottom 20% of American earners.
Taxing wealth accumulation will mean less wealth accumulation, lower productivity growth, lower wages and a less prosperous America. If you had to pay a federal property tax on the appreciation of your home and the growth in the value of your retirement assets, farm and business every year, how could you or America ever get ahead? Private investment has created $32 trillion of equity wealth in America. “Public investment” has created $21 trillion of public debt.
An agreement by wealthy countries to impose minimum taxes on multinational companies faces a rocky path to implementation, with many governments likely to wait to see what others, especially a divided U.S. Congress, will do.
Treasury Secretary Janet Yellen hailed the deal, reached by finance ministers of the Group of Seven leading rich nations over the weekend in London, calling it a return to multilateralism and a sign countries can tighten the tax net on profitable firms to fund their governments.
In countries with parliamentary systems, governments can quickly deliver on pledges, turning them into local laws and regulations. In the U.S., however, a slim Democratic majority in the House, an evenly split Senate, antitax Republicans and procedural hurdles complicate passage.
Buy-in will also have to come from a broader group of 135 countries in what is known as the Inclusive Framework. Some countries with very low tax rates — such as Ireland, with a 12.5% charge on profit — are reluctant to sign up. The U.S. has proposed tax changes that would penalize companies from countries that don’t impose the minimum taxes.
Author(s): Richard Rubin, Paul Hannon, Sam Schechner
Members of Congress have increasingly demanded large tax hikes on upper-income families to finance large spending increases on top of soaring baseline deficits. But even the most aggressive tax hikes on the rich would make only a small dent in the long-term budget deficits, and they would significantly harm the economy. Before considering any new taxes, lawmakers should first reduce federal spending benefits for high-income families. This bipartisan strategy would achieve both the redistributive goals of the left and the spending restraint goals of the right.
Such upper-income spending cuts have several advantages over new taxes: 1) they will not harm economic growth, 2) they increase future policy flexibility, 3) they are better targeted, and 4) they promote political compromise.
Several programs target spending to wealthy Americans. This report focuses on three of the largest: Social Security, Medicare, and farm subsidies, where basic reforms could save upward of $1 trillion in the first decade, and substantially more in future decades.
For a relatively small number of decedents, this plan could run headlong into Biden’s promise to not raise taxes on those with incomes below $400,000. Of course, the vast majority of decedents will have unrealized gains of far less than $1 million. Indeed, most will leave entire estates far below that threshold. Among people over 70, about 83 percent live in a household with total net worth of less than $1 million.
But some people with large unrealized gains will have been living on relatively low incomes. Imagine someone who is retired and living on Social Security, a modest pension, and some savings. But they still are holding that Microsoft stock they bought in 1987.
It’s time for the Democrats who elect presidents that promise not to jack up taxes on anybody but the rich to come to terms with something: These politicians can’t continue to spend that much money without raising taxes on nearly everyone, and that includes some regressive taxes. I don’t like it, since I’d prefer the size and scope of government to be significantly smaller—but this reality is not optional.
Here’s another reason why Biden was never going to be able to keep his promise: He already announced his intention to increase the corporate income tax from the current 21 percent to 28 percent. The reality here is that the corporations that he says are going to send bigger checks to the Internal Revenue Service (IRS) after the tax hike aren’t the ones who actually shoulder this heavier tax burden.
In case you are thinking, “Well, the rich make more, they should pay more,” the top 1 percent of taxpayers account for 20 percent of all income (AGI). So, their 40 percent share of income taxes is twice their share of the nation’s income.
Similarly, in 2018, the top 0.1 percent of taxpayers paid $311 billion in income taxes. That amounted to 20 percent of all income taxes paid, the highest level since 2001, as far back as the IRS data allows us to measure. The top 0.1 percent of taxpayers in 2018 paid a greater share of the income tax burden than the bottom 75 percent of taxpayers combined.
The numbers here are simply staggering. Consider the fact that in 2019, the last full budget year before the pandemic, the federal government spent a grand total of $4.4 trillion. Combined with the bill that already passed in March, this plan represents nearly $5 trillion in new spending.
Though the specifics of the proposal are in flux, it seems to bear some similarities to the $1.9 trillion American Rescue Plan (ARP) that Biden signed into law earlier this month. That bill was ostensibly a COVID-19 relief measure, but only a small percentage of the money was actually directed toward dealing with the pandemic. The upcoming $3 trillion package will be called an infrastructure bill, but the Times says only about $1 trillion would be directed toward such traditional infrastructure items as roads, bridges, ports, and improvements to the electric grid.
But at a national level, it is much less clear that the SALT deduction makes for good politics. Most of the key swing states, including Georgia, Pennsylvania, North Carolina, New Hampshire, and Arizona were below the national average in the value of the SALT deduction as a percent of adjusted gross income before the new cap. Florida and Nevada were in the bottom seven states.
Of course, states and local governments do need help from the Federal government. In fact, more help is needed now more than ever. The pandemic is hurting state and local government revenues, to the tune of around $350 billion over the next three years. Now is the time to enact a better federal support system for states and localities, and to replace the SALT deduction, rather than revert to the previous system.
The good news is that there are a number of good policy options available to legislators, many of which were outlined at a recent Brookings event on this subject, and any of which would be much fairer and more effective than lifting the SALT deduction cap. The key point is that Congress should help states directly, rather than through the long, roundabout route of a regressive tax break to individuals.
Warren is spending this week talking up her “Ultra-Millionaire Tax Act.” It’s essentially a refreshed version of the same idea she proposed during her failed bid for the Democratic presidential nomination. The current measure, like the old one, would tax the net worth of American households with more than $50 million in assets to the tune of 2 percent annually, with an additional 1 percent tax for households worth more than $1 billion. Warren favored the wealth tax in 2019 when the economy was generally doing pretty well. But now, she says, it’s needed “because of the changes in this country under the pandemic.”
Compared to the OECD average, the United States relies significantly more on individual income taxes and property taxes. While OECD countries on average raised 24 percent of total tax revenue from individual income taxes, the share in the United States was 41.5 percent, a difference of 17.5 percentage points. This is partially because more than half of business income in the United States is reported on individual tax returns. OECD countries on average raised 5.6 percent of total tax revenue from property taxes, compared to 12.1 percent in the United States.
The United States relies much less on consumption taxes than other OECD countries. Taxes on goods and services accounted for only 17.6 percent of total tax revenue in the United States, compared to 32.3 percent in the OECD. This is because all OECD countries, except the United States, levy value-added taxes (VAT) at relatively high rates. State and local sales tax rates in the United States are relatively low by comparison.
There are rumors that the Biden administration is thinking of a 15% minimum tax on companies with book or accounting income (“GAAP” income) of $100 million or more. This proposal tends to bubble up on the national policy agenda off and on with unfailing regularity. For example, in April 2019 Senator Elizabeth Warren raised a similar proposal in the early days of her presidential campaign and the Joint Committee on Taxation, as far back as 2006 examined Treasury’s advocacy of such a tax. Sadly, this was tried once and was a failure. In 1986, the corporate minimum tax was amended to include an adjustment for book-tax differences, being applied from 1987 to 1989 before it was not renewed.
There are many pitfalls associated with the idea of taxing book income. For starters, companies that meet the threshold will try and minimize GAAP income to pay lower taxes. One could argue that is desirable as we often suspect that companies today inflate GAAP income to look better to their shareholders. Tying tax rates to book income would imply that earnings management, or attempts to artificially inflate GAAP earnings, will now incur a real cash outflow cost in terms of higher taxes. However, the usefulness of GAAP earnings would be severely compromised and if distorted by tax related maneuvers, will give managers and speculators even more fuel to spin narratives to justify wild valuations. One can even imagine a world where stock return volatility driven by uninformative earnings numbers might drive away uninformed investors from equity markets.