Take the example of a mogul CEO who owns stocks with a net worth of $10 billion. Assume, for the purposes of this exercise, a 10% annual growth in the value of our tycoon’s stock, a conservative estimate given the recent history of Wall Street. Last year, for example, the S&P 500 rose 26.9%.
Let’s also assume that this same tycoon pockets $20 million in annual CEO pay. After taking various deductions, the tycoon turns out to owe 20% of that $20 million in annual income tax.
But our tycoon would also have to pay taxes, if Congress passes the Biden budget, on the tycoon’s 10% annual stock gain. Adding that stock gain would bring the mogul’s total taxable income for the year, under the Biden tax plan, to $1.02 billion, along with the mogul’s $20 million CEO compensation package. added to the $1 billion the tycoon’s stock has earned in the year pricing.
The mogul is expected to pay, under the Biden plan, at least 20% of that $1.02 billion — $204 million — in taxes. Under current law, our tycoon only owes $4 million in taxes.
Such a tax hike, venture capitalist Kevin O’Leary said last Monday on CNBC’s Squawk Box, would be simply “un-American.”
Such an increase, the Biden administration counters, would be sheer fairness.
“Under current law, when an American worker earns a dollar in wages, that dollar is taxed as he earns it,” the White House explains. “But when a billionaire earns income because their investments increase in value, that gain is too often never taxed at all.”
America’s more than 700 billionaires, the administration adds, saw their “wealth increase by $1 trillion” last year. Yet under current law, billionaires pay “only 8% of their total realized and unrealized income in taxes.”
“A firefighter or a teacher,” adds the White House, “can pay double that tax rate.”
Biden’s tax plan actually takes much the same approach that Tom Paine took with the wealth tax proposal he first introduced in 1792. Paine tailored his tax, as does the Biden’s proposal, to the gains the rich make from their wealth, not the total. value of this wealth. As a result, observe tax analysts Jeremy Bearer-Friend and Vanessa Williamson in their new article, The common sense of a wealth taxsome scholars think we can describe Paine’s tax plan as “an income tax or a wealth tax” — the same definition option we have now with Biden’s new tax plan.
Bearer-Friend of George Washington University and Brookings Principal Investigator Williamson converted Paine’s plan tax brackets and rates to 2020 U.S. dollars. According to Paine’s plan, they find, wealthy households receiving just over $15 million of their estate would pay $1.4 million in total tax. Households drawing nearly $50 million from their wealth would pay about $23 million in taxes. And households earning more than $50 million of their wealth would be subject to a 100% tax on all their earnings above that $50 million.
In other words, Paine was essentially calling for a limit to how much wealth any rich person could add to their fortune annually. “Basically,” Bearer-Friend and Williamson’s research concludes, Paine’s 100% tax bracket — if passed today — would only apply to billionaires.
Under Paine’s plan, the two analysts point out, billionaires who earned a 5% annual return on $2 billion in wealth would owe $73.3 million in taxes, the equivalent of about 3.5% tax on their personal wealth. That 3.5% rate, Bearer-Friend and Williamson note, would be remarkably close to the tax rates that appear in the wealth tax proposals that Senators Elizabeth Warren and Bernie Sanders have advanced in recent years.
The Biden administration’s tax plan doesn’t put as much money into big private wealth. But the Biden plan represents an important step toward taxing the wealth of America’s wealthiest, says Gabriel Zucman, the world’s leading expert on economic inequality. This economist from the University of California at Berkeley reminds us that mega-billionaires Jeff Bezos, Warren Buffett and Elon Musk together paid only $1.5 billion in federal income taxes during the period of five years that ended in 2018. Under the Biden proposal, this trio will pay “at least” 100 times more taxes over the next nine years.
Tom Paine’s fiscal policy priorities, Bearer-Friend and Williamson suggest, “relate directly to the 21st century challenges of rising oligarchic concentration of wealth and deteriorating conditions for American democracy.” Paine believed that extreme wealth undermines “the ability of citizens to choose their leaders”. Freedom, according to Paine, “meant both lifting the poor out of scarcity and dependence” – so that they could participate as full citizens – and eliminating the “vicious influence” of a fiercely concentrated.
Tom Paine was right.
Sam Pizzigati co-edits Inequality.org. His latest books include The case of a maximum wage and The Rich Don’t Always Win: The Forgotten Triumph Over Plutocracy That Created America’s Middle Class, 1900-1970. Follow him on @Too_Much_Online.