What Billionaires Pay in Taxes
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As the debates heat up and candidates are throwing shade at each other left and right, it's essential to separate the noise from reality. Senators Bernie Sanders and Elizabeth Warren are particularly known for their stance on taxing the hyper-wealthy.
The question is, what are billionaires actually paying in taxes? How does it affect us, and should we care?
The Current Situation
The federal income tax is designed to be progressive. The rates increase in steps as income rises. The goal is to help restrain significant disparities in income and provide revenue for public services.
According to a 2019 article in Business Insider, in 2018, American billionaires paid less in taxes than the working class. This is the first time that this has happened in history. While the average American paid 28% of their income in taxes, billionaires paid less than 23%.
Now, let's put that into perspective. Between 1950 and 1980, billionaires paid 50% in taxes. Since the eighties, the amount that they are required to pay has been gradually scaled back.
One reason that they get a break is that taxes on investment income are much lower than salaries and wages. This form of income is considered to be 'unearned. For billionaires, most of their money is contributed to this form. This is why many politicians are calling for a rise in taxes on capital gains and dividends.
CEOs of major corporations earn an average of nearly 300 times more than the average American worker. It's vital to learn more about how the rich can pay less than you and your family.
Another reason that the wealthiest Americans can get more significant tax breaks is that the cap tax deductions are 28%. This means that a wealthy family who lives in a McMansion will get a larger deduction on their interest than a middle-class family who lives in a two-bedroom house.
The wealthy are also able to take advantage of certain loopholes so they don't have to pay any taxes on inheritance. They are also able to avoid capital gain taxes by holding onto their assets until death.
Today, people like Warren Buffet, Donald Trump, Mark Zuckerberg, and Jeff Bezos pay a lower tax rate than a middle school teacher who makes $45,000 a year.
A Growing Wealth Gap
Right now, the top 1% own 40% of America's wealth, compared to the bottom 80%, who own just 11%. As billionaires keep receiving tax breaks, the wealth gap continues to expand. Many of the countries wealthiest consider these levels of inequality to be unsustainable, including JPMorgan Chase CEO Jamie Dimon.
The US Census Bureau revealed in September that the level of income inequality is at the highest level ever recorded. Instead of growth being evenly distributed, it is primarily going to the wealthy.
According to Americans for Tax Fairness, the most significant factor contributing to growing income inequality is the change in income from capital gains and dividends.
The Future
Many of the current Democratic presidential candidates are intending on tackling the increasing wealth inequality with moderate wealth tax as a solution. One important proposal is Senator Warren's 'Ultra Millionaire' tax, which calls for an annual 2% for families worth between $50 million and $1 billion, and 3% for those who make more than that.
This plan is backed by ordinary Americans, as well as many who are very wealthy. Billionaire Warren Buffet also has an idea of his own. The Buffet Rule, as it's known, would require millionaires to pay a minimum of 30% in taxes. This would raise $72 billion over a period of 10 years.
It's also important to note that since the corporate tax cut pushed by Trump in 2017, we're not sure how much that major companies such as Facebook and Amazon are paying in taxes.
The Verdict
It's about time that those who have the most money start paying their share in taxes. Instead of taking advantage of many loopholes available to them, super millionaires and billionaires should at least be required to pay a rate as high as their employees.
