First and foremost, I’m not an economist nor legal expert on tax law.
For many years, now, there’s been big discussions on wealth disparity between the poor and the ultra-wealthy. This discussion has really fired up more recently as we watched very rich people increase in wealth over the pandemic while everyone else suffered.
But there’s some gross misunderstandings on display as people talk about this. Claiming someone’s net worth increased by $100b without paying taxes just plainly shows a stupid amount of lack of understanding, or potentially a plain malicious viewpoint of the problem.
To say Bezas, Musk, Gates, etc should pay taxes on their net worth increase is also to say your next door neighbor should pay taxes when the value of their classic car increased. It’s literally the same thing. There is no income being earned on the increase in value of something.
The likes of Bezos and Musk don’t earn anything on their wealth until it’s traded for money. It’s at this point that they do, in fact, pay taxes. Unfortunately, the rate is very low because it’s not payroll income, it’s capital gains, which is taxed very differently. This rate used to be far far higher, but was cut way down in recent decades.
The net worth that is measured is based around total assets, not liquid assets. Total assets can include ownership of their businesses. Liquid assets is, basically, money ready to spend. That means when we say Musk is worth $300b, it doesn’t actually mean he has $300b to spend. When his net worth increased from $200b to $300b, that doesn’t mean he earned $100b.
That also means it’s totally wrong to say that Bezas earns more in a minute than I make in a year. It’s correct to say his net worth increased in the last minute at a rate higher than mine increases in a year, sure. But that’s not more money in his pocket.
But that also doesn’t mean these guys aren’t ultra-wealthy.
In terms of salary, I earn way more than Jeff Bezos. But in bonuses, he gets over $1m per year. He also earns dividends on his investments. On these things, he pays taxes. He also, on occasion, cashes in some of his capital assets for various reasons, such as investing more cash into a project (ie: Blue Origin) or buying such a huge yacht that it carries a mini yacht.
But he still sits on over $200b.
The problem is, this is $200b in assets that don’t contribute to the economy in any way, but contributes to the value of the dollar. This is extraneous assets that exist and contribute to inflation. This is money that no one is spending. This is idle wealth. With Elon Musk around $250b net worth, at the moment, it doesn’t take very many more people to get to half a trillion dollars in idle assets contributing to the dollar value and inflation, but not the flow of cash and the economy. This is wealth that exists and goes unused.
Now, I’m not a fan of communism’s redistribution of wealth. But I’m also not a fan of out of control wealth hoarding. Honestly, I’m not exactly sure how to curb this without resorting to communist ideas and policies. It’s possible there’s a way to do it, to discourage such a massive accumulation of idle wealth, but as I noted, I’m not an economist. What I think is important, though, is to understand why this is more complicated than the idea these people are not paying their fair share of taxes.
Warren Buffet once lamented the fact that his tax rate is far lower than his secretary and everyone else he works with (I believe referring to Berkshire Hathaway), and that he felt it was unfair. He’s been a strong proponent of increasing taxes on the ultra-wealthy, and even criticized a Bush era tax cut on dividends. It’s possible that bringing these burdens back up, increasing the tax rate on dividends and other capital gains, would encourage liquidating more of those assets to achieve a goal, distributing those assets among those that could further benefit from it. It’s a field in the game which the rich get to play more than the poor, but might help actually push down some of that wealth, something trickle down economics failed to do.
Additionally, this would increase federal income and give the country more liquidity for the federal budget and paying off the federal debt. And by focusing on capital gains rather than payroll income, I’m not talking about increasing the tax rate on the general public. We wouldn’t see an income tax rate hike.
But, of course, this is a partisan issue, for some reason. Taxing the wealthy without increasing W-2 taxation would still be a highly divisive issue because the ultra wealthy that want to continue to hoard their wealth and sit on their piles of gold know who to pay off to drive the narrative, and it tends to follow party lines fairly closely (with a few exceptions).