Opinion: Some assume there’s no solution to the gap between the ultrawealthy and the average American. There is: The Billionaires Income Tax.
| opinion contributor
Today, 11 Arizonans have nearly as much wealth as the entire bottom half of households in our state. Yet our tax laws have not kept pace with this rising income inequality and do not effectively ask the very wealthy to contribute their fair share.
In fact, ProPublica’s analysis of IRS data showed that in some years, the wealthiest have avoided paying a single cent in federal income taxes.
Most taxpayers owe tax on the income they accrue on a yearly basis; they pay their taxes through withholding, as they draw their salaries.
But for the wealthiest, salary income represents only a fraction of their economic gains.
The ultra-rich keep getting richer
The majority of their income is earned through capital appreciation, that is the increasing value of the property they own. Under federal law, that economic gain is not taxed until the property is sold, and it can escape income tax all together if the property is held until death.
By deferring tax on this income until the property is sold, the wealthiest are able to reduce their effective tax rates, and this advantage exists on top of the already reduced (capital gains) rates applicable to the sale of many assets.
At the same time, billionaires can borrow against the value of these assets – often at very low rates – and use that borrowing to make investments that further increase their wealth.
Too often, we assume that there are no solutions to rising income inequality and the increasing power imbalance between the ultrawealthy and average Americans.
But for this problem, Congress has already proposed a viable solution.
How the Billionaires Minimum Tax would work
The Billionaires Minimum Income Tax would ensure that the ultrawealthy contribute their fair share. The tax applies only to billionaires or to those whose income has exceeded $100 million in the last three years.
The legislation would impose a tax on gains on publicly traded stock based on the change in stock value over the tax year.
For privately held (and therefore more difficult to value assets), the Billionaires Minimum Income Tax imposes the tax retroactively.
Arte Moreno is the Arizona billionaire who owns the Los Angeles Anaheim Angels. Under current law, his investment in the Angels can increase in value tax-free until Moreno sells the team, and if he should die before selling the team, that increased value would escape income taxation completely.
Under the Billionaires MinimIncome Tax, when Moreno finally sells the team, he would pay tax on the gain from the investments and interest representing the value of his delayed tax payments.
Congress should make them pay their fair share
Arizonans and working-class families across the country have long sensed that the economy isn’t working for them. Federal tax law offers benefits to the ultrawealthy that aren’t available to middle-class wage workers.
We should push Congress to change this.
When all U.S. taxpayers, including the ultrawealthy, pay their fair share, we can fund investments that will improve economic outcomes for everyone. We can adequately fund schools, provide support for families facing crushing child care costs, and ensure rural Arizona has access to broadband and the job opportunities such access creates.
But to do all this, Congress must act.
Erin Scharff is a law professor at the Sandra Day O’Connor College of Law at Arizona State University. Reach her at [email protected].