It’s far past time that we stopped tolerating billionaires paying no taxes. Despiteout-of-control growthin billionaire wealth over the last several years, many of the richest people in America stillpay lower tax ratesthan many working Americans.
Trust in American institutions islower than ever, and the American people are looking for lawmakers to show that they’re serious about un-rigging a system that gives special treatment to the wealthy. TheBillionaire Minimum Income Tax, proposed by President Biden in his latest budget andnow introduced as legislationby Reps. Steve Cohen (D-Tenn.) and Don Beyer (D-Va.) would do precisely that.
The Billionaire Minimum Income Tax would implement a 20 percent minimum tax on the nation’s wealthiest taxpayers, requiring households worth over $100 million to pay at least 20 percent in taxes on their full income, including realized and unrealized gains. If Congress is serious about ensuring the wealthiest Americans no longer avoid paying their fair share, this piece of legislation is a no-brainer.
Unlike those who work for a living, most wealthy individuals have their wealth contained in assets like stock or real estate and don’t need a salary. That means they are only taxed if they decide to sell their assets, at which point any capital gains would be recognized and taxed. But the ultra-wealthy don’t need to sell their assets to generate billions of dollars in untaxed income. Billionaires can take out special low-interest loans with their assets as collateral. That money works just like any kind of income, but it isn’t taxed like it. Since the loans are not considered income, billionaires can reap the growing value of their assets without ever triggering a tax bill.
Families can continue to avoid taxes forever by using this‘buy, borrow, die’ strategy: holding onto their assets without selling, borrowing against them for income and using the loophole at inheritance that allows billionaires to pass on the increased value of their assets to heirs tax-free.
As a result, many ultra-billionaires end up paying a lower tax rate thanaverage working and middle-class taxpayers. A series of leaks has shown us that the top 0.001 percent of wealthiest Americans pay somewhere around 17 percent of their income in taxes, while the average single worker earning $45,000 per year pays 21 percent and the average married couple with one child earning $200,000 per year pays 26 percent.
Sometimes their tax bills are flat-out zero. For several years, billionaires like Jeff Bezos, Elon Musk and George Soros haveavoided paying any federal income tax at all.
We’re bombarded with news about how little the rich pay in taxes so often that it becomes less shocking over time, but there is no overstating the depth of this injustice. If you bought a candy bar at a gas station and paid five cents in sales tax, you paid more in taxes for that candy bar than the richest men in the world paid in income tax over entireyearsin which they were making billions of dollars. Something in our tax code is deeply, fundamentally broken.
Thankfully, at least some of our lawmakers are serious about fixing it. The Billionaires Minimum Income Tax is a simple solution to this problem of freeloading billionaires, and it would affect only thetrulyultra-wealthy.
This isn’t about punishing wealth; it’s about ensuring everyone is playing by the same set of rules. Ordinary Americans pay taxes on their income on every paycheck, and a 20 percent minimum tax is lower than the top tax rate for a single person earning $45,000 of income. The kind of billionaires that buyyachts that are like Russian nesting dollswith smaller yachts inside of supersized ones, or the ones that canbuy up an entire Hawaiian island,can clearly afford to pay at least that much.
There’s a reason a moderate like Joe Biden is fighting for this change — it’s both good policy and good politics. Commonsense tax reform like the Billionaire Minimum Income Tax would make our tax code dramatically fairer, and in the context of a Senate that seems unwilling to spend without a corresponding pay-for, raising hundreds of billions of dollars from billionaires would allow the Biden administration to make record-breaking investments in public amenities and welfare programs.
But that’s not all — it would also give the Democratic Party a major, popular policy win that proves they’re serious about standing up for working Americans, something the party desperately needs in a difficult midterm environment.
Taxes can be complicated, but this isn’t. Every billionaire should be paying taxes at the end of each year just like other Americans. It’s high past time that we ended this special carveout for a small number of elite Americans and made everyone, no matter their wealth, play by the same rules.
MorrisPearlis a former managing director at Blackrock, Inc., the chair of the Patriotic Millionaires, and co-author of “Tax the Rich! How Lies, Loopholes, and Lobbyists Make the Rich Even Richer.”
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FAQs
Billionaires (usually) don't sell valuable stock. So how do they afford the daily expenses of life, whether it's a new pleasure boat or a social media company? They borrow against their stock. This revolving door of credit allows them to buy what they want without incurring a capital gains tax.
How much money do billionaires not pay in taxes? ›
The nation's millionaires and billionaires are evading more than $150 billion a year in taxes, adding to growing government deficits and creating a “lack of fairness” in the tax system, according to the head of the Internal Revenue Service.
How do billionaires avoid estate taxes? ›
Private-placement life insurance, or PPLI, can be used to pass on assets from stocks to yachts to heirs without incurring any estate tax. In short, an attorney sets up a trust for a wealthy client. The trust owns the life-insurance policy that's created offshore.
Do the rich pay less taxes than everyone else? ›
In 41 states, the top 1 percent of families have a lower tax rate than everyone else, according to the analysis. In 42 states, the top 1 percent of earners pay less than the bottom 20 percent, and in 46 states the top 1 percent are taxed at a lower rate than the middle 60 percent, the study found.
How do the rich use debt to avoid taxes? ›
Buy, Borrow, Die Strategy: This strategy involves buying appreciating assets, borrowing against them, and letting heirs inherit the assets to avoid capital gains tax. Managing Leverage Risks: Leveraging debt can increase wealth, but it also magnifies risk, liquidity issues, and costs, hence needs careful management.
Why does Tesla not pay taxes? ›
Despite this, the company's total federal income tax over that period was less than zero—it received a $1 million refund. That's because Tesla has benefited from generous government subsidies in the form of grants and tax credits for clean-energy projects, whose value has been calculated between $3 and $5 billion.
What tax loopholes do the rich use? ›
Others will object to taxing the wealthy unless they actually use their gains, but many of the wealthiest actually do use their gains through the borrowing loophole: They get rich, borrow against those gains, consume the borrowing, and do not pay any tax.
Who pays the most taxes in the United States? ›
In 2021, the bottom half of taxpayers earned 10.4 percent of total AGI and paid 2.3 percent of all federal individual income taxes. The top 1 percent earned 26.3 percent of total AGI and paid 45.8 percent of all federal income taxes.
Who has paid the most taxes ever? ›
CNBC's Robert Frank reports on Elon Musk's tax bill which is the largest in history. Musk will pay a total of $12 billion for 2021.
At what net worth does a trust make sense? ›
Many advisors and attorneys recommend a $100K minimum net worth for a living trust. However, there are other factors to consider depending on your personal situation.
The strategy is called 'Buy, Borrow, Die'. This approach involves buying appreciating assets like stocks, collectibles, and particularly real estate; borrowing against these assets at less than their appreciation rate; and eventually passing the assets down to heirs, often with little or no capital gains tax liability.
Why do rich people put their homes in a trust? ›
Asset protection: A properly designed trust can also protect the assets in it from creditors, predators and failed marriages. In addition, a properly designed trust can protect the assets in it from long-term care and nursing home costs.
Why are the rich taxed so little? ›
While giant companies enjoyed record profits in recent years, many still pay lower tax rates than most working families. That's in part because many take advantage of generous tax breaks and stash profits in tax havens around the world.
Do billionaires use credit cards? ›
What Credit Card Do the Super Rich Use? The super rich use a variety of different credit cards, many of which have strict requirements to obtain, such as invitation only or a high minimum net worth. Such cards include the American Express Centurion (Black Card) and the JP Morgan Chase Reserve.
Do rich people get social security? ›
The amount a person receives in Social Security benefits is not directly affected by their current income or wealth. Therefore, even if someone is a millionaire or billionaire, they can still receive Social Security benefits if they have a qualifying work history.
Why don't billionaires give money away? ›
Because unlike your average UN Bureaucrat or uninformed college student who thinks that the world's problems are going to be solved by an infusion of money, many billionaires realize that they're just throwing good money after bad for something that will have no noticeable business.
Does taxing the rich help the economy? ›
Taxing the Rich Could Raise Trillions — But That Alone Won't Fix Our Fiscal Crisis. Because of the structural mismatch between federal spending and revenues, the budget deficit from fiscal year 2023 was $1.7 trillion, or 6.3 percent of gross domestic product (GDP).
How much tax evasion by millionaires and billionaires? ›
IRS Commissioner Werfel: Millionaires and billionaires evade more than $150 billion a year in taxes. CNBC's Robert Frank reports on a recent crackdown from the IRS.
