Growing wealth inequality has been exacerbated by the pandemic, as the global middle class shrinks and millions fall into poverty. One question has lingered: What can be done to address both the economic scars of the pandemic, and the inequality that’s grown alongside them?
It’s a measure that could also be popular with voters. A new poll from Hill-HarrisX of 2,813 registered voters asked respondents, “Which comes closest to your view about the wealth tax proposed by Democrats for individuals with a net worth over $50 million?”
Of those respondents, 56% found wealth inequality to be a “significant problem facing the country,” with billionaires paying a wealth tax part of the solution. Conversely, 44% of respondents considered it unfair to impose an additional tax on people who already pay income taxes because because that would become “a penalty for being rich.”
There was a particularly stark partisan divide, as The Hill notes: 77% of Democrats answered that a wealth tax was part of the solution, compared to 35% of Republicans.
The current state of taxes in the US
Warren wants to tax the ultrawealthy, and campaigned on it during her 2020 presidential run. Her Ultra-Millionaire Tax Act targets households with net worths exceeding $50 million, proposing a 2% tax on those with a net worth between $50 million and $1 billion, and a 3% tax on those with over $1 billion.
She’s not the only politician looking to change up how American taxes work: Sen. Bernie Sanders, another wealth tax supporter, has introduced two pieces of legislation targeting the wealthy and corporation by reforming the estate tax and corporate tax.
Meanwhile, President Joe Biden, who hasn’t explicitly backed a wealth tax, wants to hike taxes on corporations and American households making over $400,000.
Biden’s corporate tax hike is meant to finance his recently proposed American Jobs Plan. A Morning Consult/Politico poll found that 57% of voters said they would be more likely to support a $3 trillion plan funded by tax increases on Americans making over $400,000, compared to 47% of voters who said that they’d be more likely to support a $3 trillion funded by a corporate tax increase.
A recent study from IRS researchers and economists found that the wealthiest Americans may not even be paying the full amount of taxes they owe, with the top 1% of Americans not reporting about 21% of their income. At a Senate Finance Committee hearing last week, IRS Commissioner Charles Rettig said that that over $1 trillion in taxes could be going uncollected every year.
Over the last 13 months, American billionaires added $1.62 trillion to their wealth – a 55% increase.
This was a finding in the latest report from the left-leaning Institute for Policy Studies (IPS) and Americans for Tax Fairness (ATF). Both groups have tracked billionaire gains throughout the coronavirus pandemic, which has seen a K-shaped economic recovery for Americans: High-income workers have seen their jobs and pay grow, while low-wage workers have experienced the opposite.
“Billionaires’ huge pandemic-era wealth growth comes on top of a 19-fold increase in billionaire wealth over 31 years-from an inflation-adjusted $240 billion in 1990 to $4.56 trillion in 2021,” the report said. The report used data from Forbes to track billionaire gains from March 18, 2020 through April 12, 2021.
The number of billionaires has also grown, going from 66 in 1990 to 719 today.
“The concern is that we sort of further entrench the inequalities that we came into the pandemic with, meaning the number of households that are economically precarious grows,” Chuck Collins, director of the Program on Inequality at IPS, told Insider.
He said the “concentration” or “pooling” of wealth among billionaires has also accelerated.
“That’s the reality: We’re going to come out of the pandemic another degree of more unequal,” he said.
In the fourth quarter of 2020, the bottom 50% of Americans held $2.49 trillion in total household wealth. Meanwhile, the top 1% added about $4 trillion to their wealth during that time – more than the bottom 50% holds in total.
To offset the inequality that’s arisen during the pandemic, Collins recommends a combination of supporting frontline workers, lifting up the wage floor, and taxing the rich over the next six months.
If nothing is done, Collins said, that economic precarity could grow. He predicts that homeownership could decrease, as economic vulnerability – and the lack of savings – rises.
Additional taxes on the wealthy have become a hot-button topic during the pandemic. The International Monetary Fund has said that one-off taxes on the wealthy and corporations could help with coronavirus recovery; however, not everyone agrees, with Nobel Prize-winning inequality economist Angus Deaton saying the wealthy would find a way to dodge a tax. IRS Commissioner Charles Rettig also just said that $1 trillion or more in taxes could be going uncollected every year.
President Joe Biden has proposed a hike in the corporate tax to fund his infrastructure package, and has said that Americans earning over $400,000 could see a tax increase. In a speech defending the tax increase, he said that he was “sick and tired of ordinary people being fleeced.”
Collins said he thinks Biden has about two years to enact change and start making a meaningful difference in people’s lives.
“There’s a possibility of totally turning the course here,” Collins said. “But it is going to require some courage and boldness and spine, but I actually think the broader public is with the president on this.”
From March 18, 2020, to March 18, 2021, the world’s billionaires added $4 trillion to their wealth, according to a new report from the left-leaning Institute for Policy Studies (IPS).
That’s a 54% increase for the world’s 2,365 billionaires, who now have $12.39 trillion. The wealthiest 20 billionaires alone added $742 billion to their collective wealth during a pandemic – a 68% increase.
A January Oxfam report, which tracked global billionaire gains through December 31, 2020, found that the world’s billionaires had added $3.9 trillion to their wealth during the pandemic – an increase that could pay for the entire world’s vaccinations and prevent anyone from falling into poverty. That report found that recovery for people at the bottom could take up to a decade, with 200 million to 500 million people falling into poverty in 2020.
Now, according to the IPS report, which analyzes data from Forbes, Bloomberg, and Wealth-X, those billionaire gains have grown.
Renewed calls for a wealth tax
One of the Oxfam report’s possible solutions for creating a “better world” was imposing a wealth tax.
The IPS report found that American billionaires account for less than a third of that total wealth. But a wealth tax like the one proposed by Sen. Elizabeth Warren – where households with a net worth of over $50 million would see a 2% tax, and those with over $3 billion would see a 3% tax – would still raise $120 billion per year, according to the report.
From the end of 2019 to the end of 2020, the top 1% of Americans added just about $4 trillion to their wealth, while the bottom 50% held just $2.49 trillion in total household wealth by the end of 2020.
However, a wealth tax may still be a ways off in the US. President Joe Biden’s new infrastructure package is paired with an accompanying tax hike. But that increase would only target corporations, raising the corporate tax from 21% to 28%, and seek to enact a global minimum tax rate of 21%. It leaves wealth individuals alone, for now, although Biden’s administration has said it wants to tax households making $400,000 a year and up.
“I’m open to other ideas, so long as they do not impose any tax increase on people making less than $400,000,” Biden said in his speech introducing the package.
Chuck Collins knows how rich people hide their money.
Collins was an heir to the Oscar Mayer wiener fortune, an inheritance that he gave away completely. But that meant he learned firsthand how the wealthy (even the very charitable) hold onto their fortunes. It’s one thing to give up your income, he learned, and another to compromise the principal – and deprive future generations of accrued wealth – completely.
He opted to give it all away. Today, he’s the director of the program on inequality and the common good at the Institute for Policy Studies, where he delves deep into billionaire gains, income inequality, and how the ultrawealthy dodge taxes in America.
The situation is likely worse than widely appreciated. Recent research found that America’s highest earners may have been hiding billions from the IRS – far more than assumed. In fact, the report found that the top 1% of Americans don’t report 21% of their income, and the figure might be twice as high for the top 0.1%. That research comes from the government itself in the form of the Internal Revenue Service (IRS), along with academic economists.
Sen. Bernie Sanders has introduced legislation that would increase taxes and cut loopholes, and The Wall Street Journal reported that Biden is looking into beefing up the IRS. (Sanders wrote a blurb fo Collins’ book.)
In his upcoming book, “The Wealth Hoarders,” Collins dives into what he calls the Wealth Defense Industry: The army of tax attorneys, family offices, accountants, and more who are devoted to protecting clients’ wealth – and circumventing taxes. His thesis implies that this industry is an inevitable outgrowth of financialization, in which the financial sector grows out of proportion to the rest of the economy. But he argues it’s not too late to reverse it.
Ahead of its publication, Insider spoke to Collins about his own history, the book, and what needs to come next.
The current state of the ‘Wealth Defense Industry’
Collins writes that the Wealth Defense Industry has “mushroomed” in size since his first introduction to it in 1983. For instance, there are now over 10,000 family offices worldwide, he writes.
Collins said that legislation like that introduced by Sanders, Biden’s election, and the blue wave of the 2020 election, led wealth advisors to urge clients to move their money into “new forms” that would be more difficult for tax collectors to find.
“I feel like we’re kind of in a moment where this industry has been growing and growing and accelerating really in the last 15 years – the number of family offices, the number of planners, the number of dynasty trusts,” Collins said. “And it’s reaching this pinnacle moment because, for the first time in a long time, there’s a meaningful discussion about taxing the very wealthy.”
What ordinary people may not understand about how wealth is hidden
Collins told Insider that there’s an outdated image of wealth hiding, where it’s all stored offshore. But the US is the number two destination for “global kleptocratic capital.” Instead of storing money offshore, he said, the wealthy can turn to places like South Dakota, Wyoming, or Delaware.
“The thing I think we don’t understand is we are now the tax haven,” Collins said.
In the book, Collins details the myriad, complex systems that the so-called “Wealth Defense Industry” uses to obscure money. One is “artports,” or art-storage facilities that could be in your neighborhood, full of incredibly valuable paintings.
While one of those facilities could be mere blocks away from you, these ports are technically in Free Trade Zones, and the art never actually enters US commerce.
Or take, for instance, those brand-new glass towers in your downtown, where the wealthy could be parking their wealth by buying up units. Collins uses the Millennium Tower in Boston as an example. Those empty apartments, with their panoramic views, function as “wealth storage units” – and, Collins writes, over 35% of the units there are owned by shell companies and trusts.
On his own decision to give up his wealth, and the pressure that the wealthy face
“I would say the overwhelming cultural message for someone growing up in my class was ‘protect and preserve. You can do quirky things with your income, but don’t touch the corpus. Don’t touch the asset, let it just keep growing,'” Collins said.
For him to think differently meant going up against the “whole universe of wealth management” – and others in his position face an industry that has a self-interest in holding onto their assets and growing them. But Collins contends that there’s a certain point where people don’t need to keep accumulating or stockpiling wealth.
“There’s probably people out there that fundamentally think that they should pay more taxes, but their advisors, just it’s unthinkable, right?” Collins said. He said that there’s a whole culture surrounding the urge to utilize every possible tool and loophole to reduce taxes.
But there’s momentum for change
Collins said he thinks the “reform train” is moving, pointing to potential tax increases being put forward by the Biden administration. But even with new laws, he said, the agenda could be undermined by the Wealth Defense Industry, which underscores the need to shut down this hidden wealth system and close up loopholes.
“it’s like we’ve had a wild party at this restaurant, and now the billionaires are going to slip out the kitchen door before the bill comes,” Collins said. “And we basically have to say, ‘Nope, everybody has to stay and we need you all to chip in from the bill here.'”
He later added: “This is totally fixable. Start with enforcement, outlaw the bad trusts, increase transparency in reporting and disclosure, and then join with our global partners to clean up the global system. We could reverse it in 10 years.”
President Joe Biden is getting even more serious about raising taxes on the wealthy, according to a new Bloomberg report. It likely won’t look like a “wealth tax,” though.
Biden hasn’t said he’d enact a wealth tax like the one proposed by Sen. Elizabeth Warren, and instead he’s reportedly considering alterations to the tax code that would increase taxes on high earners without creating a brand-new tax that targets wealth.
Now, the deputy director of the National Economic Council, David Kamin has told Bloomberg what other tax changes are currently under discussion. One is eliminating the stepped-up basis, something that Treasury Secretary Janet Yellen has already been eyeing.
That measure has to do with inheritance, and how inherited assets are valued for tax purposes. Current law lets assets that have gained value since they were originally acquired be valued at their market price and only taxed on increase from the value at the time of inheritance – not any of the prior gains.
Also under consideration, according to Bloomberg, is increasing the tax rate on capital gains, taxing them at the same rate as the income tax.
Capital gains – profits made from selling assets like stocks – are taxed differently from income once the owner has had the asset for over a year. The rates for those gains are generally lower than the income tax. Throughout his presidency, Donald Trump mostly weighed even more cuts to capital-gains tax rates. Biden’s proposal could bring the rates up to 39% for those making the most money, a far cry from rates that currently come to around 20%. Also, wealthier Americans are exactly the type of people likelier to own assets that can be sold for a capital gain.
Finally, Biden wants to raise taxes on business.
Yellen is working toward creating a global minimum corporate tax rate, under the idea that if the US can convince most other countries to set the corporate tax rate at a certain level, Biden can raise corporate taxes without fear of multinationals leaving the country.
Growing disparity has underscored the push for a tax increase
According to Bloomberg, the “administration’s intentions” have been reinforced by the K-shaped recovery taking place throughout the pandemic in which high-income Americans have seen their jobs and wages grow, while low-income Americans experience the opposite. Biden himself used the term during a 2020 presidential debate.
Biden’s $1.9 trillion stimulus did offer some relief – and increased consumer confidence – for low-income Americans. That package was passed through reconciliation, which seems to be the most likely route forward for any Democratic tax hikes.
Tax increases – and what the wealthy are (or aren’t) paying – have been a hot topic
A new report found that the top 1% of Americans are avoiding taxes more than anticipated; they’ve been failing to report about 21% of their income.
There’s also been a more targeted push by progressives to introduce a new tax on wealth. Warren introduced a new bill that would increase taxes on the top 0.05% of households. If the measure had been in place in 2020, it would have raised $114 billion from billionaires alone.
In an interview with Bloomberg, Warren praised the American Rescue Plan and Biden’s continual advocacy for it. “There is momentum now for real change, and tax policy is a critical part of that change,” she told Bloomberg.
Warren also recently Sen. Bernie Sanders and other progressive Democrats in introducing a bill that would target corporations where CEOs are at least 50 times more than the median worker. That bill could raise up to $150 billion in 10 years.
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.
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
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.
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.”
Inequality has been growing during the pandemic, and a wealth tax could be a fix
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.”
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.
“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.