Democrats want a wealth tax and Republicans want another tax cut

Senate Majority Leader Mitch McConnell of Ky., speaks during a news conference with other Senate Republicans on Capitol Hill in Washington, Tuesday, Dec. 15, 2020. Sen. John Barrasso, R-Wyo., second from left, and John Thune, R-S.D., second from right listen.
Senate Minority Leader Mitch McConnell with Sens. John Barrasso (R-WY), second from left, John Thune (R-SD), second from right, and Roy Blunt (R-MO).

  • Republicans reintroduced a bill to repeal the estate tax, which affects less than 2,000 households.
  • The GOP lawmakers claim this will help farm estates, but USDA data show only 0.6% would be affected.
  • This legislation comes eight days after Democrats introduced an ultramillionare tax.
  • See more stories on Insider’s business page.

Eight days after the Democrats introduced an ultramillionaire tax proposal on the richest American households, Republican lawmakers proposed less taxes on the wealthy by means of a federal estate tax repeal.

The estate tax is a tax on a person’s right to transfer property after death, but it only applied to estates valued at over $11.7 million in 2021. A 2020 estimate by the Tax Policy Center found that fewer than 2,000 households would have to pay the estate tax in 2020, given this high threshold. But Republican Sens. John Kennedy of Louisiana and John Thune of South Dakota want to permanently repeal all of that with their Death Tax Repeal Act of 2021.

“The death tax is lethal to many family-run businesses and farms,” Kennedy said in a statement. “Louisianians shouldn’t lose a legacy of family work to a punishing, illogical tax burden. By ending the death tax, we can make it easier for families to pass their farms and businesses to the next generation.”

However, data from the Dept. of Agriculture revealed that farm estates did not actually bear much of the brunt of estate taxes. In 2020, the USDA forecasted that only 0.6% of the 31,394 farm estates would be required to file an estate tax return, and only 0.16% of those estates would have an estate tax liability.

Thune and Kennedy did not immediately respond to Insider’s request for comment.

The Republicans’ legislation came after Democrats introduced an ultramillionaire tax on the top 0.05% of Americans households on March 1, led by Sen. Elizabeth Warren of Massachusetts, which would place a 2% tax on household net worth between $50 million and $1 billion and a 3% tax on household net worth over $1 billion.

“A wealth tax is popular among voters on both sides for good reason: because they understand the system is rigged to benefit the wealthy and large corporations,” Warren said in a statement.

Taxing the wealthy has often been a partisan issue in Congress. During a speech in 2017, former President Donald Trump called the federal estate tax a “tremendous burden” on family farmers and said he would not allow “the death tax or the inheritance tax or the whatever-you-want-to-call-it to crush the American Dream.”

The reintroduction of the tax repeal also comes as President Joe Biden signed his $1.9 trillion stimulus into law on Thursday, offering significant assistance to low-income families while cutting out those earning above $80,000 from receiving $1,400 stimulus checks.

“To Speaker Pelosi, Majority Leader Schumer, and everyone who voted for the American Rescue Plan – thank you,” Biden said on Twitter on Wednesday. “This is a historic victory for the American people.”

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Elon Musk would have paid $4.6 billion in 2020 under Warren’s wealth tax proposal, data shows

Elon Musk
Tesla and SpaceX CEO would be hit heavily by the tax.

  • Musk would have paid $4.6 billion in 2020 under Warren’s “ultra-millionaire” plan, tax groups said.
  • The Tesla and SpaceX CEO was worth at least $150 billion at the end of 2020.
  • Musk plans to use his fortunes to fund a future colony on Mars.
  • Visit the Business section of Insider for more stories.

Elon Musk would have paid $4.6 billion in 2020 under proposals for an “ultra-millionaire” tax, data from tax groups shows.

Sen. Elizabeth Warren of Massachusetts proposed the Ultra-Millionaire Tax Act Monday. It would apply an annual 2% tax on individual net worth between $50 million and $1 billion, or 3% on net worth above $1 billion.

If this tax had been in place in 2020, Musk would have paid the second most of all Americans, beaten only by departing Amazon CEO Jeff Bezos, Americans for Tax Fairness (ATF) and the Institute for Policy Studies (IPS) Project on Inequality said, basing their calculations on Forbes data. Musk would be followed by Microsoft co-founder Bill Gates and Facebook CEO Mark Zuckerberg, the groups said.

The nation’s roughly 650 billionaires have a collective wealth of more than $4.2 trillion, the groups said. Their fortunes have increased by about 44% since March 2020, when the pandemic lockdowns in the US started, and over a decade the wealth tax on those 650 billionaires alone would fund about three-quarters of President Joe Biden’s $1.9 trillion coronavirus relief package, the ATF and IPS said.

About a third of the wealth tax would be paid by the 15 richest Americans alone, who combined have a fortune of more than $2.1 trillion, they added.

Musk has grown richer and richer over the past year

At the end of 2020, Musk’s real-time worth was $153.5 billion according to Forbes and $170 billion, according to Bloomberg. Both rich lists said his wealth increased more than sixfold within a year.

Based on Forbes’ figures, Musk would have paid $4.6 billion last year under Warren’s proposal. Using Bloomberg’s figures, this would have been $5.1 billion.

Musk and Bezos have been flip-flopping as the world’s richest person since January. As of March 5, Bezos tops both Forbes and Bloomberg’s lists. Musk is worth $152.4 billion, according to Forbes and $162 billion, according to Bloomberg.

Musk made his fortune from his business empire. He is the CEO of both Tesla and SpaceX, founder of Neuralink, and co-founder of the Boring Company.

Though he takes the minimum legally allowed salary from Tesla, Musk’s compensation package awards him stock when Tesla achieves certain goals, making him the world’s highest-paid executive last year. He has a roughly 20% stake in Tesla, as well as 57 million vested Tesla stock options, according to Bloomberg.

He also has a 48% stake in his aerospace company, SpaceX. A February 2021 funding round valued SpaceX at $74 billion.

Musk has ambitious plans for his fortunes. In December, he told Mathias Döpfner, the CEO of Insider’s parent company, Axel Springer, that he was selling all his possessions to fund a future colony on Mars.

“In fact, I’ll have basically almost no possessions with a monetary value, apart from the stock in the companies,” Musk said. “If things are intense at work, I like just sleeping in the factory or the office. And I obviously need a place if my kids are there. So, I’ll just rent a place or something.”

Musk also recently sold several expensive pieces of property, including three neighboring homes in the Bel-Air neighborhood of Los Angeles.

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With a federal wealth tax looking unlikely, states like New York could enact their own

FILE PHOTO: New York City Mayor Bill De Blasio speaks to the media during a press conference In the Queens borough of New York City, New York, U.S., April 10, 2020. REUTERS/Eduardo Munoz
New York City Mayor Bill De Blasio speaks to the media.

  • New York’s Democratic lawmakers may be able to push through a state wealth tax, Bloomberg reports.
  • Debate over a federal wealth tax continues, but some areas are taking matters into their own hands.
  • Places like Arizona and San Francisco have already enacted their own taxes.
  • Visit the Business section of Insider for more stories.

New York legislators may be able to push through taxes on the ultrawealthy amidst the turmoil surrounding Gov. Andrew Cuomo, Bloomberg reports

Cuomo previously outlined a worst-case scenario where New York’s wealthiest would see the country’s highest income rate taxes if the White House didn’t step in to help with the budget deficit. During the pandemic, Cuomo has said he wanted to make sure New York’s tax base was preserved, and wealth taxes would not help in that regard.

Now, according to Bloomberg, New York’s Democratic lawmakers are considering a package that would “go further,” given that the governor is embroiled in a sexual-harassment scandal and a federal investigation into his handling of nursing homes during the pandemic.

Progressives in New York have been champing at the bit to increase taxes on the wealthy. New York City Mayor Bill de Blasio previously called for a progressive tax and a tax on billionaires in his final State of the City address. And New York representative Alexandria Ocasio-Cortez has previously called to raise the top marginal rate on those earning over $10 million.

“New York City will fight for new progressive income taxes that establish brackets with increased tax rates for high earners and the ultra-wealthy,” de Blasio said in a release on the address. “And with more billionaires than any other city in America, New York City will push for a billionaires’ tax. The billions of dollars raised from these progressive taxes will go into investing in New York City’s schools, working families, and a recovery for all of us.”

The Wall Street Journal reported in mid-February that some Democratic lawmakers in New York were coalescing around what’s called a mark-to-market tax on billionaires. Those billionaires would pay capital gains taxes annually on appreciating assets, not just at their sales.

As talk of a federal wealth tax grows, some places have already enacted them

Sen. Elizabeth Warren recently renewed her calls for a wealth tax, introducing the Ultra-Millionaire Tax Act with several other progressives. Under Warren’s plan, households with a net worth between $50 million and $1 billion would see a 2% tax, and households with a net worth over $1 billion would see a 3% tax.

Treasury Secretary Janet Yellen has said that a wealth tax poses “difficult” implementation problems, and it’s not favored by President Joe Biden. But some places in the US have already taken matters into their own hands.

San Francisco voters passed a tax in November on business owners and top executives who earn at least 100 times more than one of their average workers. Those CEOs earning 100 times more than their average worker would be taxed an additional 0.1% on business tax payments. The surcharge also increases to 0.1% of however much more they earn. 

And Arizona passed an additional income tax on its high-earners; all of the money raised will go to public and charter schools. The creators of that proposition estimated that it could bring in $940 million annually.

In Washington state, lawmakers are considering a net-worth tax that could generate up to $4.9 billion in revenue. One millionaire, Dan Price, is out advocating for it. “I’ve been demanding to Washington State to tax me more,” he told Insider’s Hayley Cuccinello.

So, while there may not ultimately be a federal wealth tax, a patchwork of state and city taxes on the wealthy could arise to take its place.

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Elizabeth Warren’s new wealth tax bill would have raised $114 billion from billionaires in 2020

elizabeth warren
Sen. Elizabeth Warren has continually advocated for a wealth tax.

  • Several Democrats just proposed a wealth tax that would apply to 0.05% of American households.
  • An analysis finds billionaires would have paid $114 billion in 2020 if the plan was in effect.
  • A wealth tax has been a popular proposal for addressing inequality but would face implementation issues.
  • Visit the Business section of Insider for more stories.

The newly proposed Ultra-Millionaire Tax Act would have raised $114 billion from American billionaires in 2020 if it had been in effect.

This projection comes from an analysis from Americans for Tax Fairness (ATF) and the Institute for Policy Studies (IPS). Looking at Forbes billionaire data, the analysis found that the wealth tax would raise $1.4 trillion over 10 years – and that billionaire wealth still would increase under the proposal. 

“If the past continues, billionaire wealth has grown much faster than the economy and wages overall, and that’s been true for 40 years,” Chuck Collins, the director of the program on inequality and the common good at IPS, told Insider. “In 1983, there were 18 billionaires.”

Sen. Elizabeth Warren, along with Reps. Pramila Jayapal and Brendan Boyle, introduced the act on Monday. Households with a net worth between $50 million and $1 billion would see a 2% tax, and those with a net worth over $1 billion would be taxed 3%. According to a press release, the tax would only apply to 0.05% of American households. 

A wealth tax was a key plank of Warren’s 2020 presidential platform. Critics voiced concern at the time over not just the constitutionality of such a tax, but whether it could even be effectively implemented. The latter concerns remain – in President Joe Biden’s administration, no less. Treasury Secretary Janet Yellen said last week it would be difficult to implement and that President Biden doesn’t favor it.

But the bill by progressive Democrats represents another attempt to address increasing inequality. In a press release for the bill, Representative Brendan Boyle said “the hyper concentration of wealth among a tiny number of multimillionaires and billionaires is a crisis for American capitalism and the American Dream.” 

Boyle added: “It is time for the ultra-millionaires to pay their fair share so that critical government programs can be bolstered to help the everyday American. Our proposal will make a meaningful difference in the lives of Americans who need the most help and bolster our country’s shrinking middle class.”

Concerns over constitutionality and implementation

Warren’s proposal also contains two letters from law professors on the constitutionality of such a tax, specifically addressing which clause from Article I would be applied.

Former Justice Dept. tax attorney James Mann previously told Insider’s Taylor Nicole Rogers that the constitutionality of the tax would probably end up debated in front of the Supreme Court.

Regarding implementation, Stephen Henley, senior managing director and national tax practice leader at CBIZ MHM, previously told Insider that such a wealth tax would require those wealthy individuals to value their net assets every year. “You can imagine having to go out and get values of all those assets every year would be an administrative nightmare,” he said.

In particular, people could come up with ways to devalue their assets, or hire appraisers that use methodologies that could benefit them. And the IRS may not have the manpower or bandwidth for the auditors who would audit those forms.

Collins said there would be “real” potential implementation difficulties, and “startup issues” with both the enforcement and creation of a “new tax regime … But then once it’s in place, I think it’s not that hard to update it on an annual basis.”

The bill also contains several anti-evasion measures, including a $100 billion investment in the IRS and a 30% minimum audit rate for those impacted by the tax.

Millionaire Liesel Pritzker Simmons – who would see higher taxes under Warren’s plan – has been a long time wealth tax advocate. Pritzker Simmons is an heiress of the Hyatt hotel empire fortune. She’s also the cofounder of and principal at Blue Haven Initiative, which invests in impact-driven groups and companies.

Regarding the concerns over implementation and enforcement, she told Insider, “I think every person that would be affected by this tax knows exactly how much money they have and exactly where it’s located.” 

Liesel Pritzker Simmons

Inequality has been growing during the pandemic, and a wealth tax could be a fix

Throughout the pandemic, American billionaires have seen major gains, adding $1.3 trillion to their collective net worths.

Overall, American billionaires are now worth $4.3 billion; the bottom half of the population holds just about $2.4 trillion in wealth. Globally, an Oxfam report found billionaires increased their wealth by $3.9 trillion from March 18, 2020, to December 30, 2020. 

That report also found that, while billionaires recouped all of their losses by November, recovery for the bottom could take up to a decade – and that a wealth tax was one step “towards a better world.” Warren herself has previously argued that a wealth tax is one way to invest and build in the future of the country and economy.

A wealth tax has also seen popular support: An Insider poll from February 2019 found that 54% of Americans supported Warren’s proposal. 

“Inequality is ballooning – I mean, the pandemic has laid this bare – but it didn’t just start with a pandemic. This has been going on for years. For me, why I really support a wealth tax is that I think it’s going to be good for the economy,” Pritzker Simmons said.  “We can see that trickle-down economics doesn’t work. We’ve seen this play out over the last 40 years.” 

She added: “I think that a policy fix is in order.” 

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Janet Yellen’s Treasury sees a wealth tax as too hard to implement, but she has other ideas on what to change

janet yellen fed
Janet Yellen.

  • Treasury Secretary Janet Yellen said she’s not planning a wealth tax like Elizabeth Warren’s.
  • Yellen told The New York Times that such a tax would have “very difficult implementation problems.”
  • But she is looking into other tax routes, including capital gains and the corporate tax. 
  • Visit the Business section of Insider for more stories.

Treasury Secretary Janet Yellen has indicated that a wealth tax is off the table, but she is looking at other potentially significant measures.

In an interview with The New York Times’ Andrew Ross Sorkin, Yellen said she wasn’t planning a wealth tax like Sen. Elizabeth Warren’s proposal because it’s “something that has very difficult implementation problems.”

Yellen also said during a virtual conference held by the Times that “a wealth tax has been discussed,” but it’s not favored by President Biden.

One major plank of Sen. Warren’s presidential run – and, later, Sen. Bernie Sanders’ run – was a wealth tax. Warren called for an “Ultra-Millionaire Tax” that would levy an annual 2% tax on households with net worths between $50 million and $1 billion. Households that have a net worth over $1 billion would have seen a 3% annual tax. Warren has renewed her calls for a wealth tax amidst the pandemic, as inequality grows along with the K-shaped recovery.

Stephen Henley, senior managing director and national tax practice leader at CBIZ MHM, told Insider that wealth taxes like Warren’s and Sanders’s would require wealthy individuals to value their net assets every year, similarly to how assets are valued for an estate tax when someone dies. With a wealth tax, that valuing would be annual – “not just when you die.”

“So somebody that might have $50 million or $100 million of wealth, you can imagine having to go out and get values of all those assets every year would be an administrative nightmare,” Henley said.

Many of those individuals may hold private assets in addition to public ones, another “administrative nightmare” for valuing assets.

“You can also see where that would be ripe for tax avoidance, and even tax evasion,” Henley said.

For instance, if the legislation didn’t require someone to get an appraisal, they’d have to come up with some way to devalue it. Or people could hire appraisers that know the appraisal is for a wealth tax, and “use certain methodologies that will benefit the client.”

Henley also added that the IRS “doesn’t have the manpower or the bandwidth” to increase their auditors, who would audit all of those forms. 

So if not a wealth tax, then what? Yellen has indicated that she’s open to some other ways to raise tax revenues. 

There may be some other potential changes on the horizon

The Times reports that Yellen is looking into ending one tax rule that could have a significant impact: the “stepped-up basis” on capital gains.

For this kind of tax, Henley gives the example of a piece of land that someone bought for hundreds of thousands of dollars years ago, but now it’s worth $5 million. The owner of that land then passes away, and the land is left to an heir. So even though the land has appreciated in value, it’s passed along to the heir at that current value of $5 million.

Under the current regime, there would be no capital gains tax on how much the land appreciated, even though in fact it would have gained millions of dollars in value. Instead, capital gains taxes would be measured “only on the change in the asset’s value relative to the stepped-up basis,” according to the Congressional Budget Office – aka, gains beyond that $5 million value at the time of inheritance.

“So in other words, if they were to immediately sell the land for $5 million after the will was probated, and they got the land, then they would pay no income tax on that,” Henley said. “No capital gains tax.”

The Times reports that Yellen “plans to explore stopping” that rule.

Henley said that, broadly, Biden’s plan to increase the capital gains tax would be easier to implement than a wealth tax.

“It would probably generate more revenue immediately,” Henley said, “because you’d have everybody that is subject to that threshold over $1 million, either a capital gain over $1 million or income over $1 million – they’d be taxing.”

Per Bloomberg, Yellen also said the Biden administration is looking to raise the corporate tax to 28%. As Insider’s Allana Akhtar previously reported, that increase to 28% from 21% has long been a part of Biden’s tax plan.

Yellen also addressed a financial-transactions tax, a measure which Sanders has said he would use to make college tuition free and ease student debt

“It could deter speculation but it might also have negative impacts,” she said, according to the Times.

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NYC still has the most homeowners worth over $30 million in the world, study says

New York City skyline
New York City.

  • NYC, Los Angeles, and London house the highest number of individuals with net worths over $30 million.
  • New York takes the top spot globally, per a new report that includes second and third residences.
  • There’s a problem for NYC, though: the ultra-rich may be choosing to primarily live — and pay taxes — elsewhere.
  • Visit the Business section of Insider for more stories.

Out of all of the cities in the world, New York City still has the highest number of ultra-rich homeowners, but there’s a catch.

A report released February 18 by real estate platform REALM and financial information firm Wealth-X found that NYC had the highest number of homeowners with net worths over $30 million as of December 2020, with 24,660 people in that class having a residence in the city. Following behind were Los Angeles with 16,295 ultra-rich homeowners, then London, Hong Kong, and Paris. 

“The largest regional economy in the US ranks first, both for the number of ultra-high-net-worth individuals by primary residence and second-homers,” the report said. “This reflects New York’s status as a global center for finance and commerce that offers a rich blend of cultural and luxury lifestyle opportunities, high-quality education and prime real estate.”

With regard to ultra-high-net-worth individuals, the report also found that:

  • Cities in the West, like London and Australian cities, have the highest shares of ultra-high-net-worth secondary homeowners;
  • Monaco and Aspen have the highest levels of ultra-high-net-worth density;
  • Secondary homeowners are generally slightly younger and have more female representation than primary homeowners. 

When deciding to include secondary homeowners in the report, the two authoring companies said it allowed for a more “holistic view” of the ultra-rich.

“The pandemic has set up the best market for second and even third homes in the luxury real estate market,” Joanne Nemerovski, a luxury real estate advisor for Compass in Chicago, said in the report. “Regardless of how amazing their main residence is, this group of wealthy individuals is used to travel, and it’s hard for them to stay put.”

However, the prominence of second and third residences among the ultra-rich in cities like NYC could be a disadvantage in the post-pandemic economy. The boost in remote working during the pandemic has prompted many wealthy homeowners to move their primary residence to lower-tax, warmer jurisdictions, notably Texas and Florida, potentially leaving a hole in their former cities’ budgets.

According to a Bloomberg report in 2020, the top 1% of New Yorkers paid 42.5% of the city’s total income tax, meaning that if those individuals choose to change their primary residence, NYC’s economy could suffer a major financial blow. 

Housing prices have also been declining in Manhattan since the pandemic has given buyers the option to move to other less expensive cities, putting the ultra-rich homeowner hotspot at risk of losing a significant chunk of its tax base.

In other words, New York could stay the number-one city for ultrawealthy homeowners, just maybe not full-time ones. 

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Wealthy Americans have gotten so rich they pay one-sixth the rate of taxes as their 1953 counterparts, study says

uncle sam taxes
  • An Institute for Policy Studies paper looks at the rate of taxes on the richest Americans.
  • From 1953 to 2018, the rate of taxation as a percentage of wealth on the top 0.01% has fallen 83%.
  • The authors say that means the concentration of wealth has become “unavoidable.”
  • Visit the Business section of Insider for more stories.

A new study finds that the top 0.01% of Americans have seen their rate of taxation fall dramatically over the past 50 years.

According to the paper from the Institute for Policy Studies, from 1953 to 2018 the rate of taxation on the richest Americans – as a percentage of wealth – fell by 83%. From 1979 to 2018, tax payments from the group, as a percentage of its wealth, decreased by more than 75%. There’s a few reasons for that. 

Broadly, the paper says, “Since 1980, American tax policy has increasingly favored wealth over work.” That includes things like the maximum rate of income tax on dividends falling lower than the maximum rate of income tax on wages, an increase in the estate tax exemption limit, and a decrease in the tax rate on corporate income.

The richest have also gotten a lot richer. In the midcentury era, an average member of that elite group held 200 times the wealth of an average American. Now, according to the paper, they hold an average of 1,000 times more wealth than the everyday American.

“America hasn’t stopped taxing its wealthiest citizens entirely,” authors Bob Lord and Chuck Collins write, “But that’s where we’re headed.”

The paper concludes that the rate of taxation on the top 0.01% is such that the concentration of wealth is now “unavoidable.” The authors write that “no other factor is as visibly and as directly connected to the concentration of wealth as tax policy.”

That research comes amidst a time of inequality further fueled by the pandemic. America continues to feel the impacts of a K-shaped recovery, where high-wage workers see their jobs and incomes grow, and low-wage workers experience the opposite.

American billionaires have added $1.1 trillion to their net worths during the pandemic, bringing their collective wealth to $4.1 trillion. The bottom 50% of Americans currently hold around $2.36 trillion in wealth. Globally, billionaires have made $3.9 trillion during the pandemic, while workers lost $3.7 trillion in earnings. American workers saw the greatest losses, with a 10.3% decline.

The idea of a wealth tax has also gained increased traction throughout the pandemic, with Sen. Elizabeth Warren (D-Mass.) renewing her calls to use it as a tool to address inequality.

“The members of the top 0.01% pay only one-sixth of what they paid a half century ago in taxes. What used to be paid every two months is now paid every twelve,” the authors write. “And there’s no sign this trajectory is changing.”

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Elizabeth Warren says the stock market has become a ‘playground for the billionaires’. She’s calling for a wealth tax to fix it.

Elizabeth Warren
Sen. Warren questions the head of the Consumer Financial Protection Bureau in 2014.

  • Sen. Elizabeth Warren of Massachusetts emphasized the need for a wealth tax during an interview with CNBC on Thursday.
  • Warren said that the stock market is like a “casino” and is not reflective of the actual economy, hurting Americans who are suffering during the pandemic.
  • Establishing clearer SEC guidelines for market manipulation, along with establishing a wealth tax, would be effective methods to counter wealth inequality in the country, Warren said.
  • Visit Business Insider’s homepage for more stories.

Sen. Elizabeth Warren of Massachusetts stressed the need for a wealth tax to counter wealth inequality in the country during an interview on CNBC on Thursday.

Brought on to discuss the GameStop trade that shook the stock market in the last two weeks, Warren told CNBC’s Wilfred Frost and Sara Eisen that the Securities and Exchange Commission needs stricter and clearer rules on market manipulation. Without them, she said the stock market is like a “casino” and is not reflective of the state of the economy. Warren also cited the importance of new stimulus checks. 

 

“But the stock market, which has become the giant casino and playground for the billionaires, just keep spinning upward,” Warren said. “That means that our real economy has …really become detached from where the stock market is and the real economy right now is suffering. Stimulus checks are a way to deal with that.”

With so many Americans filing unemployment claims during the pandemic, Warren said, and with a 20% unemployment rate for Americans making less than $40,000 a year, a two-cent wealth tax on the top tenth of one percent of families would counter wealth inequality and distribute some of the benefits of a soaring stock market. 

Warren has long advocated for a wealth tax as a way to increase economic equality.  According to the Institute for Policy Studies – a progressive think tank – the 400 richest families in America own more wealth than all Black households and a quarter of Latino households combined. When speaking of the consolidated wealth in the country, the Senator said that “a lot of the wealth is quite visible and easy to see, it’s right there in the stock market.”

She said: “A two-cent wealth tax changes this country fundamentally because it means we say as a nation, we are going to invest in the next generation. We’re going to invest in creating opportunity not just for a handful at the top, we’re going to create opportunity for all of our kids. That’s how we build a strong future in this country.”

Congress plans to hold hearings on the stock market following the effects of the GameStop trade.

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Philanthropy is still dominated by the ultrawealthy, but asking billionaires to solve inequality is colossally stupid

Finding Nemo Bruce
Bruce, one of the vegetarian sharks in “Finding Nemo.”

  • If 2020 has made anything clear, it’s that billionaires aren’t going to save us — and that goes for all the millions they spend on philanthropy.
  • Philanthropy is currently dominated by high-net-worth individuals, and philanthropy was already serving an outsized role in American life even before the inconsistent government response to the pandemic.
  • Anand Giridharadas, the author whose book “Winners Take All” criticizes this overreliance, told Business Insider that instead of funneling money into causes they’re passionate about, billionaires should instead be taking less from workers.
  • The reliance on high-net-worth individuals for philanthropy also leaves a gap that the government needs to step in and fill.
  • Visit Business Insider’s homepage for more stories.

There’s an apt metaphor for the rhetoric of “billionaires will save us” in beloved children’s cartoon “Finding Nemo.”

Our protagonists – both fish – come across sharks who paradoxically claim to be vegetarian. The sharks, to their credit, seem pretty nice. They’re trying to reform, and don’t want the fish to be scared of them. Their refrain? “Fish are friends, not food.”

They seem to be holding strong until Dory gets a nosebleed. There’s literally blood in the water; primordial instincts win out, and the sharks attack. The fish were right to be scared.

In the case of widening inequality during the coronavirus pandemic, the refrain could become: “Lower-income people and workers are friends, not food.”

But when billionaires’ net worths grow by nearly $1 trillion during a pandemic – all while their frontline workers fall ill or don’t receive hazard pay, per a report by the Institute for Policy Studies – workers are right to feel scared. Even when those billionaires turn around and give hefty donations to coronavirus-related causes.

Philanthropy and charitable giving has become one major way for Americans to help each other in times of need, particularly during the coronavirus pandemic. When the world came to a halt in March, Americans turned to GoFundMe, which the New York Times called “America’s Safety Net,” while the Gates Foundation has poured millions into pandemic-related causes, all as the government has failed to pass another stimulus following the expiration of the previous package in July.

Philanthropy on the whole is also “top-heavy,” dominated by high-net-worth individuals. Per a report from Inequality.org, small donor giving has declined over the past two decades, and “any increase in giving has been driven by donations by mega-donors and mega gifts over $300 million.” That means there’s fewer – but richer – people driving donations.

“We don’t need the richest and most powerful people in the society to give more. We need them to take less,” Anand Giridharadas, the author of “Winners Take All: The Elite Charade of Changing the World,” told Business Insider. 

“We don’t need them to make a difference. We need them to stop making a killing at the society’s expense. We don’t need them to increase their generosity. We need them to reduce their complicity and injustice.”

Anand Giridharadas
Anand Giridharadas, author of the book “Winners Take All.”

Giving is still dominated by high-net-worth individuals

This week, nonprofit organizations and foundations observed Giving Tuesday. It’s a day that a grassroots movement has been increasingly successful in connecting to charitable giving after the consumer blitzes of Black Friday and Cyber Monday.

Giridharadas said there’s an important distinction between everyday Americans donating to causes they support and the ultrawealthy pouring huge donations into various causes. Someone donating $100 to a beloved cause is, as Giridharadas notes, “for the good” and worthy of celebration.

But ultrawealthy philanthropy is a different beast entirely, he said, because it’s “engaging in giving at a scale that is quasi-governmental in ways that often seek to erase and obscure” the ultrawealthy’s role in causing many of the social problems that they laterally become interested in solving.

Even though “Winners Take All” was published in 2018, it remains a hot-button publication, and still comes up in interviews with billionaires. In December 2020, one such billionaire, former Google CEO Eric Schmidt, was asked by TIME magazine to comment on the book. 

Schmidt said he hasn’t read the book, that it has been described to him, and that he thinks there’s plenty of examples to both prove and disprove its thesis. Schmidt also said that Giridharadas’ main argument, that billionaires use philanthropy to alleviate social pressure while shaping change in a way to benefit themselves, “is certainly not my goal.”

A notable Democratic donor, with close ties to the Obama White House, Schmidt acknowledged that “the American Dream is in trouble,” as the average person hasn’t been doing much better over the last decade, while “the elite, obviously including myself, have done super well.”

A representative for Schmidt declined to comment to Business Insider.

Eric Schmidt
Eric Schmidt, former executive chairman of Alphabet Inc., and former CEO of Google.

A U-shaped philanthropy curve

Research has shown there’s a “U” shape of giving, with lower-income people – particularly those making under $30,000 a year – and higher-income people giving the most. 

Jacob Harold is the executive vice president of Candid, a nonprofit that helps connect people with information and data on giving. He said when looking at the numbers of how much people are giving, it’s important to recognize the distinction between giving as a percentage of income or as a percentage of wealth.

“You have folks at the lower end of the spectrum who really don’t have a lot of wealth,” Harold said. “And you also have people at the upper end of the spectrum, who are giving a lot as a percentage of their income, but actually aren’t touching their wealth, and so from that perspective are actually being less generous.”

High-net-worth individuals do generally give at a higher rate than anyone else. A 2018 study from Bank of America found that 90% of high-net-worth households had donated to charity in the past year. Meanwhile, a May 2020 Gallup survey found that 73% of American adults said they’d given to charity, a new low. That figure was even lower for lower-income households.

Dianne Chipps Bailey, managing director, National Philanthropic Strategy Executive at Bank of America, said the gap is “huge,” but grassroots initiatives like Giving Tuesday can help bridge it.

Among Bailey’s clients, she said she’s seen a “significant increase in interest” in giving “to achieve racial equity.” Her team has created a four-part starting plan for impactful giving towards racial equity. 

Jacqui Valouch, head of philanthropy at Deutsche Bank Wealth Management, works with high-net-worth and ultra-high-net-worth individuals. She told Business Insider that giving came to a halt in March, but was boosted “enormously” in the second half of the year.

Bill Gates Melinda Gates
Bill and Melinda Gates head up the Gates Foundation.

Some high-net-worth individuals are calling for stricter regulations on that giving

A subset of potential megadonors have even started to call for their own power to be curtailed.

Scott Wallace is the co-chair of the Wallace Global Fund, a member of the Patriotic Millionaires. This group of self-described “proud traitors to their class” wants all Americans to hold the same power as millionaires – and for its own taxes to be raised.

Wallace, who ran for Congress in 2018, told Business Insider, “if I have a choice between annoying some of the wealthiest dynasties in America by making them spend more” and “helping the people in my district be served by nonprofits,” the decision is “a total no-brainer.”

Its current crusade? Reforming charitable giving. The Patriotic Millionaires want to raise the minimum amount of assets that private foundations need to donate per year from 5% to 10%. Wallace said many foundations treat the 5% requirement as a floor, not a ceiling.

Another reform? Deductions for donor-advised funds (DAFs). Currently, someone can put assets into a DAF and deduct that full amount from their taxes immediately; all of that money is earmarked for nonprofit causes, but it could sit there for a while.

Under a related reform proposed by Wallace, DAF users would only get their tax breaks once the money leaves their account, instead of when it enters. Per Wallace, the reforms could unlock $200 billion for nonprofits – which could certainly need it this year.

The groups behind the initiative call it a “Emergency Charity Stimulus.”

anand giridharadas
Anand Giridharadas speaks onstage at Conversations About America’s Future: Senator Elizabeth Warren during the 2019 SXSW Conference and Festivals at Austin City Limits Live at the Moody Theater on March 8, 2019 in Austin, Texas.

But while reforms in giving could help, ultimately the government – and not billionaires – can provide the relief we need

Even if billionaires are donating meaningfully, they’re still individuals with their own interests.

Most importantly, they’re also not a replacement for the government – and that’s only become clearer with the lack of structural support in fighting coronavirus and racial inequities. A nonprofit can’t singlehandedly fend off the devastating effects of a global pandemic.

“We only will succeed with deep government involvement,” Harold said. “Even though it sounds like billionaires have a lot of money, in some ways it’s quite small compared to the trillions that the US government is able to bring to bear.”

That’s not to say there isn’t a role for billionaires. Rather than giving toward individual causes, or putting black squares on Instagram in support of racial equity, Giridharadas said they can fund programs that would benefit not just Black people, but all people – if they pay “proper taxes.”

“Are any of the wealthiest and most powerful people in our society serious about bending the arc toward justice?” Giridharadas asked. “And if so, are they willing to do the only thing that is actually going to get us there, which is fighting for the kind of systemic change that would reduce their own power?”

“And the good news is if they don’t want to do that, that’s fine. That’s sort of what I expect,” he said. “The rest of us have a way to do that – which is called democracy.”

[Editor’s note: The fifth paragraph was amended after publication to clarify that billionaires’ net worths grew by nearly $1 trillion amid the pandemic, per a report by the Institute for Policy Studies.]

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