Opinion: The Case for Wealthy Individuals Eager to Pay Higher Taxes

Editor’s Note: Abigail Disney, an Emmy-winning documentary filmmaker and activist, is a member of the Patriotic Millionaires. Her most recent film, “The American Dream and Other Fairy Tales,” which she co-directed with Kathleen Hughes, premiered at the 2022 Sundance Film Festival. Morris Pearl serves as chair of Patriotic Millionaires and is a former managing director at BlackRock. The views expressed in this commentary belong to them. Explore additional opinions on UJ.

UJ
 — 

In America, Tuesday marks Tax Day, an incredibly stressful occasion when many procrastinators finally file their federal returns, eagerly anticipating a refund from the IRS. However, for the wealthiest citizens, it’s merely another ordinary Tuesday.

Tax Day serves not only as a deadline for filing but also as an annual reminder of the vast disparities in taxation experiences between the ultra-wealthy and the rest of the populace. The loopholes available to the affluent are larger, and their tax rates can often be lower. In the meantime, the rich continue to amass wealth, with billionaires’ fortunes swelling by over $1.5 trillion in recent years.

This situation is not merely unjust but also unsustainable. Excessive inequality is straining our economy and democracy. Thus, it’s critical to consider how we can establish a path towards enduring stability and prosperity, beginning with ensuring the ultra-wealthy contribute fairly to the country that facilitated their success.

There are three amendments to the tax code that could help achieve this:

Presently, the U.S. tax system prioritizes wealth generated through investment over income earned through work. Individuals who toil for their earnings face significantly higher tax rates than those who profit passively through capital gains.

Inheriting assets proves to be even more beneficial. The estate tax law from former President Trump in 2017 allows the initial $12.92 million ($25.84 million for couples) to be completely exempt from estate tax, and the stepped-up basis loophole enables affluent families to wipe away millions in capital gains taxes by resetting the assets’ market value to their original owner’s death value. This creates a scenario where the wealthy can inherit vast sums while owing little tax, while someone earning that money would face a tax rate exceeding a third.

Why does our tax code impose heavier burdens on working individuals compared to affluent investors or those who simply inherit wealth? Ultimately, all money holds intrinsic value, regardless of its origin. As an heiress and an investor, it’s unjust for us to pay lower rates than those earning their livelihood through labor.

It’s essential for the tax code to regard all income comprehensively by taxing capital gains exceeding $1 million at the same rates as ordinary income and replacing the complex estate tax with a more straightforward inheritance tax treating inherited wealth as ordinary income.

We cannot limit our attention to income alone, as many of the wealthiest Americans report minimal to no taxable income. Capital gains are taxed only upon the sale of assets, leading the ultra-rich to use assets as collateral for low-interest loans, resulting in little or even negative income reported on tax forms. This “Buy, Borrow, Die” strategy explains why billionaires have enjoyed a lower effective tax rate than working-class families in recent years.

Reevaluating what constitutes taxable income could allow access to the vast wealth accumulated by billionaires that remains untaxed under the current framework. President Biden’s proposed Billionaire Minimum Income Tax aims to tax the unrealized capital gains of the wealthiest households, while others have suggested implementing a wealth tax for billionaires.

Lastly, a straightforward reform would involve increasing taxes on the ultra-wealthy compared to the merely wealthy. Currently, the highest tax rate caps at 37% for any income over $578,125 ($693,750 for married couples), so regardless of how much more someone earns, their maximum federal income tax rate remains capped at 37%.

While earning $600,000 offers a comfortable lifestyle, it is worlds apart from the circumstances of those making $600 million annually. To truly reflect the distinctions between the rich and the ultra-rich, we must revert to the higher tax rates seen during America’s most prosperous decades of the 20th century and introduce significantly more tax brackets, potentially reaching as high as 90% for incomes exceeding $100 million annually.

These three adjustments won’t resolve all our national issues by themselves, but they would significantly contribute to halting the continuous transfer of wealth to an ever-smaller group of individuals, thereby enhancing the stability of both our democracy and our economy. The tax code has the potential to serve as a robust mechanism for social and economic transformation; we simply need to utilize it more effectively.