America's billionaires pay an average income tax rate of just 8.2%

https://www.cbsnews.com/news/income-tax-rich-billionaire-8-2-percent-average/

by fIoat • 5 years ago

68 79 5 years ago

secabeen3• 5 years ago

This analysis includes as income a portion of the value of un-taxed stock gains, so it's not a traditional measure.

I don't understand how people keep making this mistake, unless it's not actually a mistake, and is just a way to generate outrage-inducing headlines.

secabeen3• 5 years ago

It's the latter.

There is probably some value in taxing unrealized stock gains. If you purchased Google stock via options at the IPO, and have still yet to sell it, it would be reasonable to consider a portion of that profit locked in, and somehow tax it. It would be complicated, and challenging, but leaving that stock entirely untaxed until it is sold or inherited incurs different problems.

closeparen4• 5 years ago

Generally the tax discussion is related to the wealth inequality discussion, and paper gains are definitely included in wealth inequality.

UncleMeat2• 5 years ago

It isn't a mistake, but it also isn't just to induce outrage. I think it is outrageous that after a certain amount of wealth you can literally never sell your stock and never need to pay taxes on it.

Rebelgecko2• 5 years ago

It seems like that figure is predicated on a nonstandard definition of "income" that includes things that aren't actually income.

marwatk• 5 years ago

I've never understood this argument. If I buy a can of soda with 'already taxed' money for $.50 and sell it for $1, is that not $.50 of income that hasn't been taxed? What makes stock special?

rsj_hn• 5 years ago

They are counting unrealized gains, so your example doesn't apply.

solveit• 5 years ago

Because you don't get taxed until you actually sell the can of soda.

Rebelgecko2• 5 years ago

For the purposes of that comparison, nothing. Just like with stock, your soda wouldn't be taxed until you actually sell it.

The alternative that would "fix" this is if you bought a soda you'd have to gradually pay taxes as the market value goes up and down. Or if you're worried about losing out on tax revenue when your kids inherit your soda collection, you could remove it limit the cost basis step up

BirdPlusPlus6• 5 years ago

The curtain drew back when the established Wall Street players, powers, and entities undeniably colluded in plain view to shut down trade during the Gamestop debacle, revealing just how unhealthy, manipulated, and unfair the NYSE really is for the small-time investor.

Our situation clearly is very far from ideal, but that only makes the ideal more important to define and restore in my estimation. As far as I can tell, healthy stock exchanges have three purposes:

1. Facilitate mutually beneficial exchange between entrepreneurs with creativity and investors with capital.

2. Determine the value of competing businesses and assets through active, decentralized trading and aggregate speculation, effectively churning the standings and keeping score.

3. Induce transparency by opening corporations' dealings to the public, inseparably tying corporations' actions and plans to their valuation.

When the market is healthy nobody is in command, the market is distributed, the game is competitive, fair regulators arbitrate minimally, traders' churning keeps score, failure-capable corporations are responsive to public pressure, and new competition with fresh ideas can enter the market competitively. Brilliantly, it's an ecosystem powered by greed and insured by selfishness, the basest and most reliable of human emotions - the animal root. Yet the ecosystem is delicate, reliant on all those elements being in place and functioning.

Save the traders' churning like a system clock, everything else in the US market is broken or corrupted in one way or another. Corrupt government meddling picks winners, the market centralized, there is collusion, the regulators are captive and incestuous, corporations which control public opinion are too big to fail, and new competition is consumed by the established corporate giants or crushed underfoot.

Now to get back around to your question, stock is special because it's the only part of the market still functioning properly and it isn't exactly money, but value equivalent to a percentage of the company. Stock shares abstractly tokenize the ownership of a company and their nature is volatility in varying degrees. Aggregate speculation driven by share trading is the most efficient and accurate model we've developed to evaluate "all the things" and it serves the same function as a heartbeat or a system clock cycle. Taxing that trade in the market's current fucked-sideways status would be disastrous. Think: making a 46yo cheeseburger enthusiast run wind-sprints in pads on a Texas summer day or overclocking a minitower with a GT 430 that hasn't been cleaned once in the 10 years it's spent on a chain-smoking Brooklyn Taxi Cab accountants' office floor - levels of disaster.

bko2• 5 years ago

The analysis by economists from the Office of Management and Budget and the White House Council of Economic Advisers drew from publicly available data and says the disparity is driven largely by how the tax code treats income generated from wealth — such as income from stocks, whose worth increases over time — rather than wages, which are immediately taxed.

I don't get how taxing "income from stocks" would work. Suppose you buy a stock at $100 and it go up to $200. Do you pay taxes on $100 because that's "income", even though its just a number. If its 30%, I would have to sell 15% of my stock, which would also trigger capital gains tax.

This gets even crazier when people own private shares and there's no clear cut market value. This essentially would amount to you having give up your company. If you grow your company by 20% a year, at a 30% tax rate, you'd essentially give up 5% of your ownership every year just to pay taxes (someone please correct me if my math is wrong).

I think it makes sense to tax actualized gains at the point of sale. There's tricks you can get around selling by borrowing at very low rates with your stock as collateral but that's a separate issue. At best we shouldn't be giving preferential tax treatment for debt financing

nickff• 5 years ago

"I don't get how taxing "income from stocks" would work. Suppose you buy a stock at $100 and it go up to $200. Do you pay taxes on $100 because that's "income", even though its just a number. If its 30%, I would have to sell 15% of my stock, which would also trigger capital gains tax."

Some places use this system, I believe there is talk of implementing it in New York State. The biggest problem occurs in situations like the dot-com bust, where an asset appreciates, and taxes are owed on those 'gains', so the individual takes out a loan to pay the taxes, and in the meantime, the asset drops in value. Individuals in this case may be forced to declare bankruptcy because of the taxes on an asset which rapidly fluctuated in value.

PaulDavisThe1st2• 5 years ago

Suppose you buy a stock at $100 and it go up to $200. Do you pay taxes on $100 because that's "income", even though its just a number. If its 30%, I would have to sell 15% of my stock, which would also trigger capital gains tax.

Suppose you buy a house (or land) for $100,000 and it increases in value to $200,000. Do you pay taxes on [the] $100,000 [gain] because that's "income", even though it's just a number?

Why yes, yes you do.

Feel free to argue that buying real estate is a different kind of capital holding than buying stocks. There are some plausible cases to be made for it. But let's not pretend that there's no precedent for taxing unrealized capital gains.

duped5• 5 years ago

Wealth taxes are more like property tax rather than an income tax.

If you own 10,000,000 in stock today you could be assessed a tax of 50,000 on it today. Next year it's worth 20,000,000 and you would owe the same rate, 100,000. If it went down to 5,000,000 you'd still owe 25,000 in taxes.

The goal is not to tax income if it exists but to excise a tax on wealth itself. Like a property tax.

KorematsuFredt5• 5 years ago

I don't get how taxing "income from stocks" would work.

It eventually boils down to what is the principle underlying that taxation. If the principle is "I need your money and I am going to take it any ways because I am the government" then any logic goes and I feel that is where the current atmosphere is.

The question we should be asking is why should we pay anything to the government. Us government by some estimates spends $24B every single day. This is just spending what took many folks years and lifetimes to earn. What value will the citizens get for every additional dollar that government gets ? My bet is we will get increased regulation, mafia styled politicians and overall misery.

On other hand every extra dollar you leave in the hands of likes of Bezos or Musk will go into fueling more innovation, industry and job. I think it is a terrible idea to tax the very fuel that increases the size of your economy.

GeekyBear• 5 years ago

I think it makes sense to tax actualized gains at the point of sale.

There are a lot of loopholes that should be closed.

Let's say your parents buy an asset and you inherit it when they pass away.

Logic says that if you eventually sell that asset, the appreciation is the difference between what your parents paid for the asset and what you made from the sale.

However, a tax loophole resets the value of the asset to what it was theoretically worth when your parents died, which renders nontaxable the capital gains that occurred during their lifetime.

https://fullstackeconomics.com/how-a-key-biden-tax-idea/

webmaven• 5 years ago

I think it makes sense to tax actualized gains at the point of sale. There's tricks you can get around selling by borrowing at very low rates with your stock as collateral but that's a separate issue.

What would you suggest for stocks that have unrealized gains that are put into a trust for a grandchild (or great-grandchild), circumventing inheritance taxes to some extent, and that are, perhaps, never sold except to rebalance the portfolio?

There are any number of (largely legal) 'tricks' for avoiding taxes and maximizing intergenerational wealth accumulation. Leaving unrealized gains untaxed just makes the whole mess worse.

dragonwriter• 5 years ago

Do you pay taxes on $100 because that's "income", even though its just a number.

All income is “just a number”, and taxes are assessed on value of non-cash, non-investment income, so the fact thar unrealized gains aren't cash isn't a fundamental limit.

If its 30%, I would have to sell 15% of my stock, which would also trigger capital gains tax.

If you are taxing capital gains as normal income even when unrealized, that would presumably replace existing taxes on (only realized) capital gains at (for long-term gains) a more favorable rate. Taxing unrealized gains/losses annually would negate the principal fairness rationale for favorable treatment of long-term gains in a progressive tax system (that it avoids overtaxing gains realized in one year but earned over several.)

Of course, you can acheive a very similar effect more simply by taxing realized gains as normal income and making reasonable allowance for advance and deferred recognition of income, which neatly avoids trying to define the time and mechanism of valuing unrealized gains/losses (time being an issue for any asset, and mechanism being an issue for anything that doesn't have a clear market value.)

ChrisLomont4• 5 years ago

What if they also pay taxes that are not listed as income taxes, say, like the majority of corporate taxes? [1]

This leaves significant portions of their effective taxes off the table.

[1] https://www.cbo.gov/sites/default/files/cbofiles/attachments...

BirdPlusPlus6• 5 years ago

The unfortunate truth about corporate taxes is they're not really possible. There are two possible outcomes.

1. The business cannot absorb the levied tax into its overhead and shuts down. Production and operations cease. Said business doesn't buy materials or supplies, workers become unemployed, and customers do not shop. Result: a net revenue loss in sales, payroll, and income taxes.

2. The business can absorb the levied tax into its overhead... which is then offloaded onto the consumer whose buying power and standard of living decreases.

Follow the money long enough and you'll find most taxes are paid by the individual consumer in roundabout and convoluted ways.

ChrisLomont4• 5 years ago

Follow the money long enough and you'll find most taxes are paid by the individual consumer in roundabout and convoluted ways.

I take it you didn't look at the link I posted. The entire field of economics would disagree with you.

Part of the cost is shifted to consumer, depending on elasticity. The rest is paid by owners. Billionaires tend to own companies that pay tax, money which would otherwise have accrued to the owner.

That is what the CBO report I linked quantifies.

mercutio22• 5 years ago

I don't think economists agree that tax incidence is so consistently one sided. It's a whole field of study. "Not really possible" seems like an extraordinary claim.

closeparen4• 5 years ago

A single medical issue or college-bound child can cost decades worth of consumer products. It could be rational to make that tradeoff.

maerF0x03• 5 years ago

I think OP's point is that say the company is "theirs" and earns $100M . Now the company pays, say, 25% corporate tax rate. So there is 75M to pay the owner. Owner takes it as income and now pays 25% tax, so they're left with 56M . Effective tax is ~44% at that point from the original $100M.

I argue with my friends that tax rate is less important than turn over rate. My spending is someone else's income, so with enough generations of spending/income all the money becomes 99.999% the government's.

Eg: I pay $1 to my friend, he pays 20c tax and keeps 80c. Then pays back to me 80c. I pay 16c tax and keep 64c. pay it again, 12.8c tax, keep 51.2 --> in 3 generations we're already at nearly 50% tax.

lotsofpulp2• 5 years ago

What is the point of counting like that if you are not also incorporating services or benefits received from the government?

ChrisLomont4• 5 years ago

with enough generations of spending/income all the money becomes 99.999% the government's

This doesn't make sense. The govt spends all the money they take in (and then some) back to the private sector. It's paid in SS, payrolls, purchases, services.

Your example ignores that the govt spends that 20c tax you listed on police, goods, social security, wages, etc, along with some borrowed from markets, so in practice the govt ends up with negative money, which is called the national debt.

khaki542• 5 years ago

"Pay your fair share billionaires!" screeched the 61% of Americans paying no federal income tax.

dane-pgp2• 5 years ago

To be clear, the 61% figure is unique to the exceptional circumstances of 2020, and "It's expected to fall back down to 42% in 2022 and remain at around 41% or 42% through 2025".[0]

I don't know if you think that 42% of Americans paying no federal income tax would be a sufficiently small percentage that the criticism of billionaire tax rates would suddenly become valid, but it's worth pointing out that 58% of Americans therefore would be paying these taxes and would constitute a majority of the voting public.

[0] https://www.cnbc.com/2021/08/18/61percent-of-americans-paid-...

khaki542• 5 years ago

No. I think that people who are paying zero or almost no federal tax should not be claiming that people paying $50K, $100K, or $1M aren't paying their fair share.

KorematsuFredt5• 5 years ago

Yeah, I demand my fair share of hat Bezos or Musk have earned. Drives away in my Tesla before the downvotes come.

dane-pgp2• 5 years ago

By framing things in terms of income taxes, the debate is already conceded. Instead, the question should be "What percentage of their net worth does an average American billionaire pay in taxes each year?".

I don't have the answer to that question, but let's compare it to the median American household, for which numbers are available. The median family's net worth[0] in the US is about $120k, and the median household federal tax burden[1] is about $10k per year, which coincidentally equates to an 8.3% annual wealth tax.

If billionaires were paying 8.2% of their net worth in tax every year, I think people would find the system a lot more fair than it is today.

[0] https://dqydj.com/average-median-top-net-worth-percentiles/

[1] https://www.propublica.org/article/the-secret-irs-files-trov...

closeparen4• 5 years ago

It is pretty frustrating how these outrage-inducing statements about billionaires are mostly used to justify tightening the screws on us "labor aristocrats." Turning up the top marginal tax rates is obviously not a way to touch billionaires. Billionaires don't pay anything close to income tax rates. But it sure as hell will touch the engineer trying to buy a house in San Francisco.

I mean, we probably should be paying higher taxes too, but we could at least have the intellectual honestly to talk about the cohort that actually pays huge income tax bills (educated workers in HCOL cities) instead of gesturing at billionaires who have nothing to do with the income tax scale.

imapeopleperson• 5 years ago

Well said, but I don’t know why you’d offer up paying even more taxes.

If anything, taxing billionaires should help lower the burden on labor aristocrats. The real issue is government having a monopoly on tax revenue and not pushing a penny far enough.

BirdPlusPlus6• 5 years ago

The real issue is government having a monopoly on tax revenue and not pushing a penny far enough. I definitely agree with this but is it even possible to incentivize that? Sometimes I wish we could put an honest "I" in IRS and sic 'em on the government.

syshum• 5 years ago

The Parent offering to pay more is more ethical than pointing over there and screaming them, send the men with guns after them to take their money, dont take my money I need it more than them....

The real issue is government having a monopoly on tax revenue

No the real issue is government having a monopoly on money, and the money supply, combined with not having any actual constitutional limits on spending.

Spending is the root cause problem here.

JKCalhoun• 5 years ago

Are people suggesting turning up the top marginal tax rates?

Because I hear about adding a new higher bracket, and/or taxing wealth, raising the inheritance tax, an AMT for capital gains, etc.

dionidium5• 5 years ago

But it sure as hell will touch the engineer trying to buy a house in San Francisco.

There are lots of things we can and should be doing to ensure that high-income tech workers won't have any trouble affording a home in San Francisco, but taxing them less isn't on that list.

closeparen4• 5 years ago

Our tax and housing policies are two reflections of the same moral system - appreciated assets are sacrosanct while valuable labor is obscene.

quantumBerry• 5 years ago

Taxation is theft.

America's billionaires pay an average income tax rate of just 8.2%

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