Washington Post op-ed: Most Wealth Taxation on the Rich Is Essentially Voluntary. That Must Change., by Jared Bernstein:
As a result of the Democratic primary, we’re having a robust debate about taxing wealth. The debate invokes tricky technical and legal issues, but it’s an overdue one: There are good reasons the United States needs to start taxing wealth.
You may think we already tax wealth, but that’s mostly not the case. As my colleagues at the Center on Budget and Policy Priorities, Chuck Marr, Samantha Jacoby and Kathleen Bryant, point out in an important new paper [Substantial Income of Wealthy Households Escapes Annual Taxation Or Enjoys Special Tax Breaks], for the very wealthy, taxes are essentially voluntary.
How can that be, when the rest of us have taxes withheld from our paychecks every few weeks, and then often pay more when we file our income taxes every April? Because wealth accumulation isn’t taxed unless you decide to sell the asset, and even then, it’s taxed at a favorable rate, compared with regular income.
The new paper provides the following true-life example from the vaults of Warren Buffett (who, to his credit, has long supported higher taxes on the wealthy): “The value of Buffett’s main asset, Berkshire Hathaway stock, rose over 17 percent in 2010, from approximately $34.8 billion to $42 billion. These figures imply income of roughly $7.2 billion. Yet in his tax returns for 2010 … Buffet’s adjusted gross income was $62.8 million, or less than 1 percent of that amount."
In other words, asset appreciation, by far the main source of income for the billionaire class, isn’t taxed at all unless it is “realized” through a sale. Because of this, at least outside of bear markets, billionaires’ tax bills will almost always be a mere few percent of their gains in wealth. My colleagues point out that Amazon founder and chief executive Jeff Bezos’s “tax bill on a decade of stock sales likely was about $1.5 billion, or less than 1.5 percent of his [$100 billion] increase in wealth due to the appreciation of his Amazon stock.” (Bezos owns The Washington Post).
That extreme concentration of wealth is slowing growth, corrupting politics and blocking opportunity for the many on the wrong side of the inequality divide.