Rising inflation and the escalating cost of everything from food and gas to houses is bound to make this Tax Day in 2022 more taxing for some Americans than in past years. As an organization that provides free tax filing, financial coaching and housing protection services for low- and moderate-income communities, we see firsthand at New Jersey Citizen Action the economic anxieties of ordinary New Jerseyans.
The nation’s billionaires face no such worries. Unlike working families who struggled through the pandemic and are now trying to recover, billionaires actually increased their wealth substantially over the last two years. Yet, thanks to our skewed tax code, they won’t have to pay more in taxes like the rest of us do.
According to Forbes data, U.S. billionaires increased their wealth by $1.7 trillion over the first two years of the pandemic, while New Jersey’s six billionaires became $3.7 billion, or 20.8%, richer. That’s a stark contrast to the financial challenges faced by millions of everyday New Jerseyans.
At the end of 2020, a third of New Jersey small businesses had closed, and about 865,000 women had dropped out of the New Jersey workforce. This is not to mention economic hardships going into the pandemic — in 2019, 41% of New Jersey’s nearly 1.93 million children were below the ALICE (asset limited, income constrained and employed) survival threshold, and this has only worsened in the last two years.
These realities make the concentration of growing wealth among the top 0.01% all the more astounding. The nation’s 700 billionaires now collectively control more wealth than the bottom half of the American population. That massive wealth gives them enormous political power to keep the tax rules rigged in their favor, with built-in loopholes and tax breaks that enable many wealthy people to consistently pay lower tax rates than middle-class workers.
While the rest of us pay taxes on the income we make from work, the wealthy pay nothing on their gains from stocks and other financial assets — their chief sources of income, which are not taxed unless the assets are sold. Economists have determined that when stock gains are counted as income, the nation’s 400 richest billionaires paid a tax rate of only 8.2% over a recent nine-year period. Meanwhile, the average federal income-tax rate for all taxpayers was 13.3% in 2019.
Current tax rules for the wealthy
Under the current rules, wealthy people don’t pay taxes on their assets until they sell those assets, but most don’t need to sell assets to live a lavish lifestyle. That means they can essentially hold onto their wealth indefinitely. To avoid ever paying taxes, rather than sell, they can pass their assets onto their heirs, thereby circumventing what they would owe under the tax system that applies to the rest of us.
This twisted exceptionalism in the tax code enables the wealthy to profit from the American economy while contributing little back into it. No matter how much money someone makes, they should still adhere to the same rules as everyone else.
It’s time the wealthy pay their fair share. But for that to happen, Congress must act on good proposals that would finally require the richest people in America to pay a fairer share of taxes than they currently do.
President Biden and Oregon Sen. Ron Wyden have proposed different versions of a billionaires income tax that would finally require rich people with hundreds of millions or billions in wealth assets to pay taxes on the annual increases in their wealth generated by stocks and other assets the same way that the rest of us pay taxes on our income from work. Polling shows this policy is supported by 64% of voters, including 61% of Independents.
New Jersey’s Rep. Bill Pascrell, who sits on the tax-writing House Ways and Means Committee and is chairman of its Oversight Subcommittee, has proposed bills to close two of the federal tax system’s worst loopholes that fuel the growing income inequality in this country. The carried-interest loophole (H.R. 1068) allows Wall Street executives to pay lower tax rates than their assistants, and the stepped-up basis loophole (H.R. 2286) allows the very wealthy to avoid paying taxes on inherited wealth.
The revenue raised from properly taxing this richest category of Americans on their real wealth could be used for any number of critical investments that would support our families. These could include lowering the cost of health care and education, expanding affordable coverage to the remaining uninsured, providing dental, vision and hearing services for seniors in Medicare for the first time, expanding affordable child care or launching a national paid leave program.
It’s time we begin treating wealth like wages and pass a billionaires tax. The ultra-wealthy abiding by a different set of rules makes our economy weaker and harms millions. Congress must take action to level the playing field — the rich will stay rich, but they will contribute fairly to our economic system and workers that their wealth is built on.