Common Good Iowa

Dubuque Telegraph Herald | Confront tax distortions by advocates for the rich

July 15, 2021

The majority of Americans believe the rich pay too little income tax, because the tax law is filled with loopholes their accountants and lawyers are able to exploit. They are right. But Jonah Goldberg (Telegraph Herald, June 15) would like us to believe this is all fair and necessary.

Goldberg’s rationale for the light taxation of the rich begins with this correct but misleading statement: “Billionaires often pay little in income taxes because billionaires don’t typically make their money from a salary.”

That, of course, is the point. The working families of America pay taxes on their wages and salaries, but the wealthy get most of their income from wealth, particularly dividends and capital gains. That income is taxed more lightly, and sometimes not at all.

When you buy stock at $10 a share and sell it for $25, the $15 you made is a capital gain. It is income. But when it gets special treatment, taxed at a much lower rate than wages and salaries. Goldberg repeats the age-old rationale for this: the rich need an incentive to invest. The rest of us have to work to eat; survival is our incentive to work, so we can be taxed on all our income. The rich, instead, claim they need to keep more of their capital gains as an incentive to keep speculating to make themselves richer.

The federal income tax, unlike sales and property taxes, is a progressive tax. The higher your income, the larger the percent paid in tax. But as Pro Publica found, this progressivity is reversed for the ultra wealthy. The richest 25 taxpayers paid only 16% of their adjusted gross income in federal income and payroll taxes, despite being in the 37% tax bracket. This is lower than the effective tax rate on someone earning $45,000 a year in wages.

Pro Publica also looked at the how much the ultra-rich paid in taxes as a share of capital gains income. Contrary to Goldberg, Pro Publica properly identifies an increase in wealth as a capital gain, which is income, as any economist knows. Meauring the effective tax rate — federal income taxes paid over five yearsas a percent of capital gains over that period — they found the average tax rate for the richest 25 Americans was a meager 3.4%.

Another reason the very wealthy pay a low effective rate is simply tax evasion. About 20% of the income of the richest Americans — the top 1% — goes unreported and untaxed. This is much higher than the 7% unreported income for those in the bottom half.

The rich, like all of us, do pay other taxes, as Goldberg points out: sales taxes, property taxes, gas taxes, state income taxes. But all those state and local taxes together do not make much of a dent in the incomes of the wealthy. On average for all states, the lowest income fifth of the population pay about 11% of their income in state and local taxes, while the richest 1% pay about 7% of their income.

In short, it is Goldberg and other advocates of comfort for the comfortable who ignore basic facts in tax discussion. We must confront these pervasive distortions of tax policy issues if we are to rebuild America’s infrastructure, make child care affordable, fund our schools, and ensure health care for all.

To finance the investments we need in our economy and in our families, we must do so while forestalling a further unhealthy and inequitable concentration of wealth and income.

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Peter Fisher is research director of Common Good Iowa. Contact: pfisher@commongoodiowa.org.

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