We need to unrig our broken tax system and ensure the IRS makes the wealthy pay their fair share.
By Noah Streng
The recent IRS tax leak confirms what we’ve known for a long time: the rich aren’t paying their fair share of taxes. Through deductions, misclassification of income and other tax loopholes members of America’s billionaire class are able to get by paying far less in taxes than the working class.
The class bias in favor of the rich and powerful inherent to our system could not be more apparent. One of the ways this is best exemplified is how the IRS taxes capital gains, a type of unearned income obtained through stocks and real estate, versus earned income obtained through work. Currently, the capital gains tax rate is only about half that of earned income. Because the top 1% generate 41% of their wealth through capital income, billionaires are able to get away with paying far less in taxes than the average worker.
Not only this, but loopholes in the estate tax allow ultra-wealthy families to dodge in large part the estate tax, the only federal curb on the accumulation of dynastic wealth. This is in part due to a decades-long campaign by the ultra-wealthy to severely weaken the tax: Trump’s 2017 tax law, for instance, doubled the amount that a wealthy couple can pass tax-free to their heirs, from $11 million to $22 million.
In addition to vigorously exploiting every available legal loophole, the rich also unlawfully evade taxes they owe. A 2020 report by the nonpartisan Congressional Budget Office found that roughly $380 billion of owed taxes are left unpaid each year. This report comes as Harvard University researchers discovered that the top 1% of earners are responsible for an overwhelming 70% of this tax gap. Not only this, but a 2021 Center for Equitable Growth study found that more than one-fifth of the top 1%’s income is left unreported to tax authorities. This means that the richest 1.6 million households in the US are hoarding somewhere between $175 billion and a quarter trillion of owed-but-unpaid taxes each year.
Instead of being hoarded multi-millionaires and billionaires, that money should be put towards robust public investments in infrastructure, clean energy, jobs, education, healthcare, childcare, and other social services that will rebuild our pandemic economy. The working class built the wealth that the rich hoard, and we pay our fair share of taxes while the rich dodge theirs. It’s time for our government to work for We the People and unrig our corrupt tax system that allows tax cheats to rob working families of the public investments we desperately need and deserve.
Congress can do this by supporting measures to tax income from investments like income from work. Currently, the top tax rate on income from the sale of stock and assets is a mere 20%, while it’s 37% on income from wages. This is why billionaires who get most of their total income from investments end up paying a lower tax rate than lots of working Americans. To combat this inequity, Congress should support Sen. Ron Wyden’s (D-OR) proposal to treat wealth like work and raise tax rates on capital gains and dividends so they match the tax rate on salaries and wages.
In addition to this, Congress should pass the Ultra-Millionaire Tax Act of 2021. Introduced by Sen. Elizabeth Warren (D-MA), Reps. Pramila Jayapal (WA-07), Brendan Boyle (PA-02), and others, the bill would help level the playing field by enacting a simple, small annual tax on great fortunes that would raise nearly $3 trillion over the next 10 years. If passed, 99.95% of Americans won’t pay an extra dime in taxes. The revenue gained from this could be put towards funding robust COVID-19 relief to help working families recover from the pandemic.
Decades of corporate and billionaire rigging of our economy and political system has left our tax system broken and serving the interests of the ruling class above everyone else. It’s past time that our government center the needs of working people and ensure the wealthy pay their fair share. Through our labor, workers built the billionaire class. It’s time for the rich to pay their debt back to society.