Tax the Rich? Here’s How to Do It (Sensibly)

Politicians on both sides of the aisle agree that the tax system is in dire need of repair. The argument is how to do it so that it is equitable and fair. Some want to fix it so that it generates more revenue; others want to use it as a tool to decrease the wealth inequality. Are those appropriate goals? Is there any surprise that the public distrusts taxes so much?

Democratic presidential candidates are suggesting numerous ways to increase the tax rates of the wealthy. Other Democrats are proposing headline grabbing ideas, such as Ms. Ocasio-Cortez’s Green New Deal. But there may be other ways to patch up the system without completely tearing it down.

High net-worth Americans legally skirt the estate tax, even before the exemption increase brought by the Tax Cuts and Jobs Act. One major avenue is by passing much of their riches to their heirs without paying taxes on capital gains – ever. According to the Center on Budget and Policy Priorities this accounts for “as much as about 55 percent for estates worth more than $100 million,” using this stepped-up basis. Closing this loophole would raise more than $650 billion over a decade, estimates the Congressional Budget Committee. 

Capital gains are taxed much less than income taxes. Warren Buffett says his secretary pays a higher tax rate than he does as the rate for capital gains top out at 20%, while a person making a $40,000 salary would be taxed at 22%. 

See Andrew Ross Sorkin, Tax the Rich? Here’s How to Do It (Sensibly), New York Times, February 25, 2019.

Special thanks to Matthew Bogin, (Esq., Bogin Law) for bringing this memorandum to my attention.