$8.5 trillion untaxed: The urgent call for a billionaire income tax

Recent analysis reveals that America's wealthiest hold $8.5 trillion in untaxed assets, spotlighting the critical need for tax reform to address growing wealth inequality.

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A staggering $8.5 trillion in wealth, held by the United States’ wealthiest individuals, remains potentially untaxed, a recent analysis reveals. This revelation underscores the growing disparity in wealth distribution and the pressing need for a reevaluation of the tax system.

This analysis, drawing on 2022 Federal Reserve data, was conducted by Americans for Tax Fairness (ATF). It highlights how the nation’s richest, less than 0.05% of the population, control vast amounts of wealth that may never contribute to the public coffers.

ATF’s scrutiny of Federal Reserve data for 2022 indicates that approximately 64,000 U.S. households, each with at least $100 million in wealth, possess more than one-sixth of the country’s unrealized gains. These gains, often from assets like stocks, are not taxable until sold.

According to Zachary Tashman and William Rice of ATF, “The ultra-wealthy don’t need to sell to benefit: They can live off low-cost loans secured against their growing fortunes.” This loophole enables them to circumvent taxation on these gains, creating a significant disparity in tax burdens compared to average Americans.

Unrealized gains refer to the increase in value of an asset, like stocks or real estate, which isn’t taxed until the asset is sold. This system stands in stark contrast to how wages, the primary income source for most Americans, are taxed.

The current tax framework allows the wealthiest individuals, such as Tesla CEO Elon Musk, to potentially pay little to nothing in federal income taxes, as their wealth predominantly stems from such unrealized gains.

The ATF’s analysis sheds light on the unequal distribution of these unrealized gains. While the majority of typical U.S. households’ gains are in home values, subject to property taxes, the wealthiest Americans’ gains are primarily tied to businesses, stock portfolios, and mutual funds.

This concentration of wealth means that a small segment of society possesses more unrealized capital gains than the bottom 84% of the country, exacerbating the wealth gap.

In response to this inequity, legislative proposals like Sen. Ron Wyden’s Billionaires Income Tax have emerged. This tax would target the tradable assets of individuals with substantial annual income or assets, aiming to ensure that the wealthiest contribute more equitably to the tax system.

Rep. Steve Cohen and Don Beyer have introduced a bill echoing President Biden’s call for a minimum income tax for billionaires. This legislation would require the wealthiest to pay taxes on their income, including unrealized gains.

The push for taxing unrealized gains has met legal challenges, with a case recently heard by the U.S. Supreme Court. Conservative groups argue that such a tax would be unconstitutional, but the justices, except Samuel Alito, appeared unlikely to support a ban on taxing unrealized gains.

ATF’s findings reveal a stark increase in the wealth of America’s billionaires and centimillionaires. Since 2019, there has been a $3.2 trillion increase in their collective unrealized capital gains, continuing a decades-long trend of wealth accumulation at the very top.

This wealth explosion, largely untaxed, contributes to an ever-widening economic divide, with profound implications for U.S. society and its democratic foundations.

Tashman and Rice argue for significant reforms to curb the economic and political power of the richest households. They advocate for taxing investment gains annually, similar to how workers’ wages are taxed, to prevent the unchecked growth of untaxed income at the economic summit.

Without these reforms, they warn, the concentration of wealth among the ultra-rich will continue to surge, deepening economic disparities and undermining the economic wellbeing of the majority.

The revelation of $8.5 trillion in untaxed wealth among America’s wealthiest is a clarion call for a billionaire income tax. This tax reform is seen as a critical step in addressing the extreme stratification of U.S. society by wealth and ensuring a more equitable economic system.

The growing wealth gap and the accumulation of untaxed riches pose significant challenges to the principles of fairness and democracy. The actions and decisions made now will have lasting implications on the nation’s economic and social fabric.

“In a nation where economic disparity has reached extreme levels, taxing the unrealized gains of the ultra-rich is not just a fiscal necessity; it’s a moral imperative,” asserts the ATF report.

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