Distribution of wealth
The 400 richest Americans (0.00025% of our population) now control more of the country’s wealth than the 150 million adults at the bottom 60%. The top 0.1% have more assets than the bottom 80%. The top 1% controls almost 40% of our nation’s assets. On the flipside, 16% of all Americans have zero (or a negative) net worth and 25% have less than $10,000.
Let’s consider a person who owns a $250,000 house with a $200,000 mortgage. They have $5,000 in their bank account and $25,000 in their 401(k). That person has a net worth of $80,000, which is the sum of all their assets ($250,000 + $5,000 + $25,000) minus the sum of all their debts ($200,000). That $80,000 net worth puts them close to the national median of household net worth, according to previous research by Edward N. Wolff of New York University. Now consider a person who is renting with less than $1,000 in their bank account and $5,000 of credit card debts. Their net worth is a negative $4,000.
Fox News and the Republicans will drone on and on about “socialism” and the “redistribution of wealth”, when in reality what we have in America is the “distribution of wealth” to the richest corporations and individuals via our tax code. Who writes our tax code? Congress. Who owns Congress? Corporations and billionaires. Take for instance the Tax Cuts and Jobs Act of 2017. It gave corporations, partnerships and S-Corps almost $1.5 trillion (with a “T”) in tax savings over 10 years. The federal deficit has ballooned to an all-time high and corporations are saving billions in taxes. In 2017 FedEx owed $1.5 billion in taxes. In 2018 they owed $0. Last year Amazon made over $11 billion in profits and you and I paid more income taxes than Amazon, as Amazon paid $0 and actually received future tax credits.
Social Security taxes are 12.4% (employee pays 6.2% and the employer pays 6.2%), however it’s capped out at $132,900 of earnings. Let’s say you’re a working professional making $132,900 in wages. You would have paid $8,240 (6.2%) in Social Security taxes via payroll deductions. Now let’s say you’re a Goldman Sachs executive making $13,290,000 in wages. You would have paid the same $8,240 in Social Security taxes, however this only amounts to 0.062% of your earnings. Also passive income doesn’t pay Social Security taxes. So if the majority of your income comes from real estate, dividends and interest you pay $0 Social Security taxes on that income. One more giant tax break for the wealthy.
Carried interest is what they call the share of any profits the general partners of hedge funds and private equity receive. It’s income, however they call it “carried interest” to get a tax break as it’s taxed at the lower 20% capital gains tax rate plus the 3.8% net investment income tax for a total of 23.8%. Contrast that with the highest tax bracket for ordinary income as of 2019 — 37% for single taxpayers with incomes over $510,300, plus the additional 3.8% investment tax again. Now you can see another huge tax break the uberwealthy are getting. So let’s tax hedge funds and private equity at 40.8%. When you’re making $10 million a year, you can afford it.
Here’s where the Democrats are failing. Make it simple so the average person can understand. Get rid of the cap on Social Security earnings and tax passive income. While the Republicans will call this a tax increase on the wealthy, the Democrats should call it removal of a huge tax break for the wealthy.
What we need is sensible tax code so the rich finally pay their fair share of income taxes. Get rid of Net Tax Loss Carry Forward. We should have progressive income tax rates so everyone is paying higher income taxes on higher earnings. In other words, only tax incomes above a certain dollar amount. Say we tax the income above $25,000 at 25%. Tax income above $100,000 at 30%. Tax income above $250,000 at 40%. Tax income over $1 million at 49%. Take a person making $400,000 per year. That first $25,000 of income is tax-free. The next $75,000 is taxed at 25% or $18,750. The next $150,000 is taxed at 30% or $45,000 and the final $150,000 is taxed at 40% or $60,000. That person making $400,000 of income would be paying $123,750 ($18,750 + $45,000 + $60,000) in taxes or 31% effective tax rate.
What we need is sensible tax code so the rich finally pay their fair share of income taxes.