By Bob Lord/Inequality.org
The Tax Foundation, a Washington, D.C. think tank founded in 1937 by business executives to “monitor the tax and spending policies of government agencies,” is once again ringing the alarm bell about tax proposals that impact only the wealthiest among us.
President Biden’s tax proposals, the Tax Foundation charges, add up to a 61.1 percent tax on “high-earning” taxpayers.
In reality, no actual taxpayers are going to face anything close to a 61 percent tax if the Biden proposals become law. The Tax Foundation, to reach that 61 percent figure, has had to add together two separate taxes on two different and totally mythical taxpayers.
The Tax Foundation’s “analysis” combines the income tax for a mythical unmarried taxpayer who dies holding $100 million of wealth, a fortune that consists entirely of one asset for which the taxpayer paid zero, and the estate tax owed by that mythical taxpayer’s estate.
The Tax Foundation analysts, interestingly, didn’t also include in their tax-rate computations the sales tax the mythical taxpayer’s heirs would pay on the purchases they made with their inherited fortune. Or the property tax they might pay if the taxpayer’s mythical zero purchase price asset was real estate.
But let’s put the Tax Foundation’s logic here aside and focus on its mythical taxpayer. All of us who study tax policy use hypothetical taxpayers as examples to illustrate the reality faced by actual people. Nothing wrong with that. The problem for the Tax Foundation analysts: No real people are going to pay the 61 percent tax rate the Tax Foundation finds so alarming. So the Tax Foundation had to invent some.
Let’s start with the Tax Foundation’s core example of an unmarried individual with a $100 million net worth. Only about two out of every 10,000 American households have wealth at the $100 million level. And married couples head the overwhelming majority of these households.
To be fair, the Tax Foundation’s analysts could have concocted an even higher Biden tax rate by choosing as an example a mythical billionaire who paid zero for her assets. That would have driven the Tax Foundation’s total claimed tax rate even higher, to 65 percent. Of course, her heirs would have been left with $350 million. Kind of hard to find that alarming, as compared to the heirs of the lowly centi-millionaire forced to make do with a mere $39 million inheritance.
But even those rare individuals who accumulate $100 million or $1 billion of wealth have paid something for the assets they hold. That reality inconveniently reduces the gains that the Tax Foundation’s mythical taxpayer could have avoided tax on during that taxpayer’s lifetime and the resulting income tax that this mythical individual would be required to pay under President Biden’s tax proposal. The Tax Foundation explains its zero-cost assumption as a simplification. That “simplification” has absolutely no basis in reality. Yet the Tax Foundation lets this assumption drive the calculations that lead to its 61.1 percent tax rate.
To grasp just how concocted the Tax Foundation’s 61-percent tax stat happens to be, consider what this “tax” would be for an ultra-wealthy household that does exist, albeit quite rarely: a married couple with wealth of $50 million. That couple would be wealthier than 999 out of every 1,000 American households. Now suppose that fully half the wealth of that couple – $25 million – comes in the form of previously untaxed gains, a reasonable assumption. The total income and estate tax bill under the Biden plan for this ultra-wealthy couple? About $16.3 million, or 32.6 percent of the couple’s wealth. Their heirs would inherit, after tax, over $33 million.
The total income and estate tax paid by this ultra-wealthy couple and its estate, by the way, would be no more under the Biden plan than the tax paid by a similarly situated couple who sold their appreciated assets prior to death.
So should we consider a 32.6 percent total income and estate tax rate on a couple comfortably in America’s top 0.1 percent, a couple that has avoided income tax for decades on $25 million of gains, be something to be alarmed about?
Hardly.
Bob Lord, a veteran tax lawyer and former congressional candidate, practices and blogs in Phoenix, Arizona. He is also an Institute for Policy Studies associate fellow. This post is licensed under a Creative Commons Attribution-Share Alike 3.0 License.
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Previously in tax scammage:
* McDonald’s Breaks Promise To Raise Wages.
* Last Year, Amazon Paid No Federal Income Taxes. Now, It’s Trying To Kill A Local Tax That Aims To Help the Homeless.
* Trump Vowed To Punish Companies That Moved Jobs Overseas. Is Congress Rewarding Them?
* After Long Career Bailing Out Big Banks, Obama Treasury Secretary Tim Geithner Now Runs Predatory Firm That Exploits The Poor For Profit.
* Jeff Bezos Just Became The Richest Person Ever. Amazon Workers Just Marked #PrimeDay With Strikes Against Low Pay And Brutal Conditions.
* A Sweet New Century For America’s Most Privileged.
* With Nation Transfixed By Kavanaugh Monstrosity, House GOP Votes To Give Rich Another $3 Trillion In Tax Cuts.
* Deepwater Horizon Settlement Comes With $5.35 Billion Tax Windfall.
* Offshoring By 29 Companies Costs Illinois $1.2 Billion Annually.
* Government Agencies Allow Corporations To Write Off Billions In Federal Settlements.
* The Gang Of 62 Vs. The World.
* How The Maker Of TurboTax Fought Free, Simple Tax Filing.
* $1.4 Trillion: Oxfam Exposes The Great Offshore Tax Scam Of U.S. Companies.
* How Barclay’s Turned A $10 Billion Profit Into A Tax Loss.
* Wall Street Stock Loans Drain $1 Billion A Year From German Taxpayers.
* German Finance Minister Cries Foul Over Tax Avoidance Deals.
* Prosecutor Targets Commerzbank For Deals That Dodge German Taxes.
* A Schlupfloch Here, A Schlupfloch There. Now It’s Real Money.
* How Milwaukee Landlords Avoid Taxes.
* Study: 32 Illinois Fortune 500 Companies Holding At Least $147 Billion Offshore.
* Watch Out For The Coming Tax Break Trickery.
* When A ‘Tax Bonanza’ Is Actually A Huge Corporate Tax Break.
* The Hypocrisy Of Corporate Welfare: It’s Bigger Than Trump.
* Oxfam Names World’s Worst Tax Havens Fueling ‘Global Race To Bottom.’
* Offshore Tax Havens Cost Average Illinois Small Business $5,789 A Year.
* State Tax Incentives To Corporations Don’t Work.
* GOP Tax Plan Would Give 15 Of America’s Largest Corporations A $236 Billion Tax Cut.
* Triumph Of The Oligarchs.
* Amazon Short-List Proves Something “Deeply Wrong” With America’s Race-To-The-Bottom Economy.
* Apple’s $38 Billion Tax Payment Less Than Half Of $79 Billion They Owe.
* U.S. Surpasses Cayman Islands To Become Second-Largest Tax Haven On Earth.
* Less Than Year After GOP Tax Scam, Six Biggest Banks Already Raked In $9 Billion In Extra Profits.
* After Budget Cuts, The IRS’s Work Against Tax Cheats Is Facing “Collapse.”
* $6.5 Billion: A Low-Ball Estimate Of The Walton Family’s Haul After 16 Years Of Bush, Obama And Trump Tax Giveaways.
* Illinois Could Recover $1.3 Billion Lost To Corporate Tax Loopholes.
* Whatever You Paid To Watch Netflix Last Month Was More Than It Paid In Income Taxes All Last Year: $0.
* Number Of U.S. Corporations Paying ‘Not A Dime’ In Federal Taxes Doubled In 2018.
* It’s Getting Worse: The IRS Now Audits Poor Americans At About The Same Rate As The Top 1%.
* IRS: Sorry, But It’s Just Easier And Cheaper To Audit The Poor.
* Corporate America’s Tax Breaks Have Left Society More Vulnerable To Pandemic.
* Another Tax Loophole That’s Making The Rich Even Richer.
* The Billionaire Playbook: How Sports Owners Use Their Teams To Avoid Millions In Taxes.
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Previously in The Paradise Papers:
* ‘Paradise Papers’ Reveal Tax Avoidance, Shady Dealings Of World’s Rich And Powerful.
* Just How Much Money Is Held Offshore? Hint: A SHIT-TON.
* Development Dreams Lost In The Offshore World.
* Keeping Offshore ‘Hush Hush,’ But Why?
* Tax Havens Are Alive With The Sound Of Music.
* Today In Tax Avoidance Of The Ultra-Wealthy.
* Go To Town With This Offshore Leaks Database.
* The Paradise Papers: The View From Africa And Asia.
* The Paradise Papers: The End Of Elusion For PokerStars.
* The Paradise Papers: An Odd Call From The Bermuda Government.
* The Paradise Papers: Nevis Is An Offshore Haven Of Opportunity
* The Paradise Papers: The Long Twilight Struggle Against Offshore Secrecy.
* The Paradise Papers: A Fair Tax System Will Be Lost Without Public Pressure.
* Item: Today In The Paradise Papers: Through Death Threats And Scare Tactics, Honduran Reporter ‘Perseveres.’
* The Paradise Papers: Journalists Flee Venezuela To Publish Investigation.
* Last Stop: Chicago.
* The Paradise Papers: ‘Africa’s Satellite’ Avoided Millions Using A Very African Tax Scheme.
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Previously in The Panama Papers:
* The Panama Papers: Remarkable Global Media Collaboration Cracks Walls Of Offshore Tax Haven Secrecy.
* The Panama Papers: Prosecutors Open Probes.
* The [Monday] Papers.
* Adventures In Tax Avoidance.
* Mossack Fonseca’s Oligarchs, Dictators And Corrupt White-Collar Businessmen.
* Jonathan Pie, TV Reporter! They’re All In It Together.
* Meet The Panama Papers Editor Who Handled 376 Reporters In 80 Countries.
* The Laundromat.
‘A widow (Meryl Streep) investigates an insurance fraud, chasing leads to a pair of Panama City law partners (Gary Oldman and Antonio Banderas) exploiting the world’s financial system. Steven Soderbergh directs.’
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Previously in carried interest, aka The Billionaire’s Loophole:
* Patriotic Millionaires Vs. Carried Interest.
* The Somewhat Surreal Politics Of A Private Equity Tax Loophole Costing Us Billions (That Obama Refused To Close Despite Pledging To Do So).
* Fact-Checking Trump & Clinton On The Billionaire’s Tax Break.
* Despite Trump Campaign Promise, Billionaires’ Tax Loophole Survives Again.
* Carried Interest Reform Is a Sham.
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Comments welcome.
Posted on September 2, 2021