Sam Pizzigati: The wealthy’s free pass
All of a sudden, almost everybody — in Congress at least — seems to want to talk about the Internal Revenue Service. Fine. We need a good debate about taxes. But let’s have a debate that zooms in on the core issues.
Like who’s paying taxes in America today and who isn’t.
Interested in a debate along these lines? A good place to start just might be a new report from the nonpartisan Congressional Budget Office on "tax expenditures."
Policy wonks have come up with the label "tax expenditures" to cover the special tax breaks that hand most of us, at one time or another, discounts at tax time.
These tax breaks can come in handy. If you buy a home, you typically get to deduct the mortgage interest you pay.
If you’re raising a family, you get to claim tax credits for your children. If you retire, you can exclude Social Security income from taxes.
And if you make a killing on the stock market, you only have to pay taxes on your windfall at half the normal tax rate.
How much do all these "tax expenditures" actually cost the federal treasury? U.S. Rep. Chris Van Hollen, D-Md., asked the Congressional Budget Office to calculate the answer, and the CBO has just reported back.
The top 10 special tax breaks in the federal tax code, CBO researchers found, will cost the federal government $900 billion in 2013 and $12 trillion over the next decade. A huge chunk of these trillions, the CBO also found, is cascading down to America’s most comfortable.
Over the next 10 years, under current law, tax expenditures will pour $3.6 trillion into the pockets of America’s top 5 percent of earners — and $1.9 trillion into the pockets of America’s top 1 percent.
Our top 1 percent — households that amass over $450,000 in yearly income — are now raking in 17 percent of tax expenditure benefits.
But these numbers only hint at how light a tax burden rests on our rich, suggests another new study from researchers at the Boston Consulting Group.
Just under 5 percent of America’s households, says this research, now hold at least $1 million each in financial wealth, assets like stocks, dollars in bank accounts.
In 2012, the total net worth of these top 5 percent of households pumped up America’s total financial wealth to an amazing $39 trillion.
America’s wealthiest households pay no annual federal taxes on any of these trillions. Why? The United States has no annual federal tax on financial wealth.
We do, on the other hand, have a tax on property wealth.
This state and local government levy essentially amounts to a tax on America’s middle class.
That’s because residential property makes up the bulk of American middle class wealth — 66 percent, on average, the latest Federal Reserve figures show.
For America’s richest 1 percent, by contrast, home sweet home accounts for only 9.4 percent of household net worth.
In other words, in America today, we tax the wealth of the middle class every year. We essentially give the wealth of the wealthy a free pass.
Other nations do tax the wealth of the rich. French households with over $21.5 million in wealth are now paying a wealth tax at nearly a 2 percent annual rate.
How much money would a 2 percent wealth tax raise for the country if we levied it on America’s millionaires? The Deloitte Center for Financial Services can help us here.
Deloitte researchers have calculated that American millionaire households in 2011 held $38.6 trillion in total, not just financial, net worth.
In 2020, Deloitte estimates, U.S. households worth at least $1 million will hold a total of $87.1 trillion in wealth.
A 2 percent annual tax on this $87.1 trillion would raise over $1.7 trillion.
Some perspective: In 2020, the Congressional Budget Office estimates, the personal income tax bill for all Americans will total $2.16 trillion.
The new CBO numbers on tax expenditures, says Rep. Van Hollen, show clearly that current federal income tax deductions, credits, exclusions, and preferences skew "disproportionately to the highest 1 percent of income earners."
America’s absence of any national annual tax on the wealth of our wealthy skews this top-tilting tax picture even more.
SAM PIZZIGATI, an OtherWords columnist, edits "Too Much," the Institute for Policy Studies’ weekly newsletter on excess and inequality. He can be reached at OtherWords.org.