Ten years after the Occupy Wall Street movement brought attention to some of the inequalities and scams of 21st century capitalism, Capitol Hill Democrats are able to raise taxes for 0.01% members, who benefited enormously, not only from the rise in inequalities and the financialization of the economy, but also from the COVID-19 pandemic. Will the Democrats seize this opportunity? Will they force the wealthiest Americans – like Jeff Bezos, Elon Musk and Carl Icahn – to pay their fair share, or will they confirm the suspicions of many Occupy supporters that the Party, no matter how well it speaks, is finally in the grip of the plutocracy?
The political backdrop for a possible tax hike is that Democrats need to raise a lot of money to help pay for a big spending package aimed at strengthening the social safety net and boosting green energy – which they have the ‘intention to push through using the budget reconciliation process. . Last week, Democrats on the powerful House Ways and Means Committee released a proposal that, according to an analysis by the Congressional Joint Committee on Taxation, would raise $ 2.1 trillion over ten years, while largely honoring President Joe Biden’s pledge not to raise taxes on middle incomes. class of Americans who earn less than four hundred thousand dollars a year. (Biden’s definition of “middle class” is elastic.) The House’s proposal is a mixture of the good, the dubious and the indefensible.
One positive aspect of the plan is that it would cancel many of the freebies to the rich that were contained in the 2017 Trump-GOP tax reform. The maximum federal income tax rate would be raised to 39.6 percent, c he resided there during Barack Obama’s second term. (If you add a 3.8% top earner investment income tax that was introduced to help pay for Obamacare, the maximum rate would be 43.4%.) The House proposal would also remove voucher many of the favors that the 2017 bill bestowed on unincorporated businesses, such as partnerships, S corporations, and sole proprietorships. (These are the business entities favored by the Trumps, Kushners, and many other wealthy people.) That would bring their marginal rate up to 46.4%.
Overall, according to the analysis of the Joint Committee on Taxation, the House plan would increase the average federal tax rate for households earning between five hundred thousand dollars and one million dollars by 28.5% to 29.9% in 2023, a fairly modest increase. . The impact on households earning more than a million dollars a year would be more dramatic: their average tax rate would drop from 30.2% to 37.3%. Since many of Biden’s spending programs largely target low-income Americans, the House is effectively proposing a significant redistribution from rich to poor.
So far, so good. The questionable part of the House’s plan is that, in many ways, it doesn’t go as far as the White House’s original vision for rebalancing the tax system, which was released earlier this year. For example, the Biden administration proposed to increase corporate tax from 21% to 28%, which is still well below the 35% rate that applied before 2017. rate to 26.5 for hundred. It would also reserve some tax credits for oil and gas exploration and omit a White House proposal to require banks to report financial flows to the IRS on an annual basis.
But the most indefensible element of the House’s plan is its failure to tackle chronic tax evasion by billionaires. Earlier this year, a leak of IRS files to ProPublica showed how in some years Bezos, Musk and Icahn managed to pay virtually no federal income tax while breaking no laws. And they were far from alone among their peers. Unlike residential real estate, which is taxed locally, financial wealth is not subject to direct tax. So, given the current tax code, it is quite easy for billionaires to structure their finances in such a way that they generate very little taxable income for themselves or their heirs. They simply have to keep most of their vast wealth and take some of their income in the form of dividends or capital gains, which are taxed at lower rates than wages and salaries. Even when the ultra-rich incur large potential tax liabilities, gaping loopholes allow them to minimize their actual payments.
As managing director of Amazon, a position he held until the start of the year, Bezos paid himself a base salary of less than a hundred thousand dollars. Since the start of the pandemic, the value of his stake in the company has grown to more than eighty billion dollars. Unless he chooses to sell stocks, as he does on occasion, he incurs no immediate tax liability. For years, Musk also paid himself a very modest base salary at Tesla, financing his lifestyle by borrowing money against the value of his shares. On Wall Street, hedge fund tycoons and private equity barons benefit from a particularly glaring loophole that allows them to convert a portion of their income into capital gains.
In theory, there are two ways to force billionaires to back down. The first, which the Biden administration has proposed, is to close some of the loopholes and increase the tax rate the very rich pay on their dividends and capital gains. The second method, advocated by Elizabeth Warren and Bernie Sanders, is to introduce an annual wealth tax. Remarkably, the House proposal adopts or of these approaches.
Perhaps it was foreseeable that a committee known to attract large donations from lobbyists would avoid the Warren-Sanders approach. But the House proposal would also cap the tax rate on dividends and capital gains at 25% instead of the 39.6% envisioned in the Biden plan. It would leave in place the “base increased” loophole of inheritance tax, which allows billionaires to pass on their wealth without paying tax on unrealized capital gains. And that would only introduce minor changes to the infamous “deferred interest” loophole, which benefits hedge fund and private equity billionaires like Ray Dalio, Henry Kravis, Steve Schwarzman and George Soros.
In short, the House Democrats’ plan targets the rich rather than the plutocrats, and it would do little or nothing to address the blatant concentration of wealth at the top that has marked our new golden age. Fortunately, there is some time left to sort out these issues. As Democrats in the House and Senate continue to work on the reconciliation bill, other proposals remain on the table. In addition to the White House plan to close loopholes and raise tax rates on dividends and capital gains for high earners, there is a long-standing call from Ron Wyden of Oregon, chairman of the Senate finance committee, so that millionaires and billionaires pay an annual tax on unrealized capital gains, makes it a wealth tax.
Last Friday, I spoke with Gabriel Zucman, an economist at Berkeley, who worked on the wealth tax proposal that Senator Warren presented during the 2020 presidential campaign. He suggested combining the idea of Wyden with the House plan’s income tax proposals and the White House’s call to raise the corporate tax rate to twenty-eight percent. “I think it would be quite powerful to bring these things together,” he said. “You could create something that would really increase the progressivity of the tax system and generate very substantial income. I also think it’s quite convenient.
Given the differences within the Democratic Capitol caucuses and the arithmetic imperative to bring everyone in, it seems unlikely the Party will go as far as Zucman and other progressives recommend. But he can surely do better than the weak evasion of the Ways and Means Committee.