By Sofia Guimaraes (PO ’24)
Three months ago, Elon Musk tweeted, “Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock. Do you support this?” This tweet sparked debate on the Biden administration’s proposed billionaire bill and cast attention on the growing income inequality in the USA, highlighting the need for a more egalitarian taxing system and a more robust welfare state. That the super wealthy don’t pay their fair amount of taxes is no news, nor that billionaires grew significantly more wealthy while low-income Americans struggled financially in the pandemic. What should be of distinct concern, however, is that even though the administration plans to support struggling Americans with a reconciliation package of nearly $2 trillion, doubt regarding its financial feasibility still remains because policies that aim to tax the wealthy fairly are not approved.
The issue at hand is simple: more has to be done to boost health and social care and to tackle the climate crisis, but the current tax system is unable to provide the necessary funds, even as the extremely rich have an unfair amount of wealth in their hands. How do they avoid paying taxes on their extraordinary wealth? The primary reason is that their wealth exists almost entirely in assets like stocks and real estate, and while these holdings can grow by billions of dollars a year, their owners only pay capital gains taxes if the assets are sold. As a result, billionaires finance their lifestyles with the money they borrow off banks rather than with money they could make from selling assets in order to avoid paying taxes. This is what Musk called attention to in his tweet on November 6, in which he asked whether or not he should sell 10% of his Tesla stocks as a means of paying taxes. As one of the billionaires who most ardently opposes taxing the ultra-wealthy, Musk’s mockery of such a serious social issue raises an important question: should a Twitter poll really dictate whether or not taxes are paid fairly?
Senate Finance Chair and Oregon Senator Ron Wyden and Massachusetts Senator Elizabeth Warren have both proposed policy plans to ensure that taxes are paid fairly but were not approved by the senate. Wyden’s billionaire income tax plan would tax roughly 700 Americans – those with more than $1 billion in assets or income of over $100 million for three consecutive years – on the gain in value of their assets every year. The plan’s tax revenue could amount to $250 billion and help cover part of president Biden’s Build Back Better Plan, which includes policies such as extending the Child Tax Credit. Even earlier in 2021, Elizabeth Warren proposed the Ultra-Millionaire Tax Act, which aimed to place a 2% tax on households holding between $50 million and $1 billion, and 3% for those with over $1 billion. Opposition to these policies comes from all Republicans but also from more conservative Democratic senators like Joe Manchin, preventing the 50-50 approval from the Senate and, in turn, money from being allocated to those in need.
Debates surrounding how to build a fair taxation system have become more intense during the pandemic as better-off Americans have seen their net worth skyrocket due to soaring stock market and real estate values. While total US household wealth grew 21% during the pandemic, those in the top income quintile account for 73%, those in the top 1% account for 36%, and those in the bottom quintile account for 1% of the growth. As a group, billionaires especially thrived during this period, seeing their wealth grow by 70% and their numbers increase by nearly 150 people. In contrast, working-class Americans were disproportionately affected by pandemic-induced job losses, and low-wage jobs have been the slowest to return, comprising 52% of displaced jobs. Hence, this data highlights the necessity of developing a more inclusive American economy through public policies that effectively alter the distribution of wealth post-pandemic.
This worrisome reality is on the forefront of the Biden administration’s priorities as the president tries to push for the approval of his $1.75 trillion Build Back Better plan which aims to enhance social programs such as the Child Tax Credit and Earned Income Tax Credit, as well as develop better immigration and climate policies. Research shows that the Child and Earned Income Tax Credit were key in lifting millions of Americans out of poverty in the last decade by boosting employment among adults and education among children. An expansion of such policies would most likely continue to contribute to the economic empowerment of low-income Americans, thus helping bridge the inequality gap. However, the plan, which is considered a reconciliation bill and therefore could pass the Senate with just 50 votes, has been facing significant opposition from all 50 Republicans and from Democrat Joe Manchin. Manchin’s concerns are related to inflation and the deficit increase that the plan would cause over the next 10 years. However, President Biden is positive that with the appropriate tax enforcement enough revenue would be raised to account for the costs, and that throughout 2022 Congress will pass at least parts of the Build Back Better plan as the administration attempts to tweak it into a more feasible proposal.
The increased hardships facing low-income Americans and the surplus of wealth in the hands of billionaires point to the need for developing a more equitable economy. The money to “build back better” exists; now it is only a matter of correctly collecting and redistributing it through a system that doesn’t rely on Twitter polls to act fairly. Certainly, the Biden Administration still has a number of obstacles on its way to implementing such reforms, but optimism prevails. Though not all on the same terms, all Democrats defended the importance of tax reform and the undeniable benefits of social programs in 2021. Therefore, 2022 will likely witness ongoing dialogue – on Twitter or elsewhere – until the urgency of constructing a more equitable economy is agreed upon.
