Editor’s note: Abigail Disney is an Emmy Award-winning documentary filmmaker, activist, and member of the National Millionaires Team. Her latest film, The American Dream and Other Tales, co-starred with Kathleen Hughes, has its world premiere at the 2022 Sundance Film Festival. Maurice Pearl is President of National Millionaires and former Managing Director of BlackRock. The opinions expressed in this comment are their own. View more opinion on CNN.
Tuesday is Tax Day in America, one of the most stressful days of the year, when many taxpayers finally end their procrastination, file federal returns, and hope for a refund from the IRS. But for many of the nation’s wealthy, it’s just another Tuesday.
Tax Day isn’t just a filing deadline—it’s also an annual reminder that the super-rich exist in a whole separate world when it comes to taxes. For us, the gaps are bigger and the rates are sometimes lower. Meanwhile, the rich continue to get richer, with the wealth of billionaires in particular growing by more than $1.5 trillion over the past few years.
This status quo is unfair, but more importantly, unsustainable. These high levels of inequality are pushing our economy and our democracy to breaking points. This is why we must examine how we can position our country for long-term stability and prosperity. And we have to start by making sure that the wealthy pay more than they owe the country that made their success possible.
There are three changes in the tax code that will help us do this:
Right now, the American tax system values money over sweat. If you work hard for your money instead of passively earning it, you are essentially being punished for it. People who get paid pay much higher tax rates on their income than wealthy investors who earn passive income from capital gains.
Inheriting money is a better deal. Thanks to former President Donald Trump’s 2017 tax law, the first $12.92 million (or $25.84 million for a couple) is completely exempt from any estate tax, and a growing core loophole allows wealthy families to permanently erase millions in capital gains taxes by returning the market value of those assets to its value at the time of the death of the original owner. With this, it becomes relatively easy for the rich to inherit tens, even hundreds of millions of dollars, and pay almost no taxes. On the other hand, the person who works for that money will pay more than a third in federal income taxes.
Why do we have a tax law that says working people should be taxed more than wealthy investors and those who get rich once they are born into the right family? At the end of the day, money is money, whether you work for it or inherit it. As an heiress and investor, we shouldn’t be paying lower tax rates than people who make their money working.
It’s time for the tax code to treat all income equally by taxing all capital gains over $1 million at the same rates as ordinary income, and to replace our inheritance tax with a simpler inheritance tax that treats inherited wealth as income.
However, we can’t just focus on income, because many of the wealthiest Americans earn no taxable income of any kind in a typical year. Capital gains are only taxed when assets are sold, so rather than selling them, the super-rich use their assets as collateral to borrow huge sums of money at rock-bottom interest rates to live on, and then declare little or even negative “income” on their tax forms. This “buy, borrow, die” strategy is the main reason billionaires have paid a less effective tax rate during recent years than working-class families.
By rethinking what is taxable, we can access the trillions of dollars of billionaire wealth that are untouchable under our current tax structure. This is why President Biden has proposed a minimum billionaire income tax, which would tax unrealized capital gains for the richest families, and why others have proposed wealth taxes for billionaires.
Finally, one of the most direct changes needed is to tax the very rich more than just tax the rich. Our income tax sets a higher rate of 37% for any income over $578,125 (or $693,750 for married couples). No matter how much someone earns, they will never pay more than 37% in federal income taxes.
While someone making $600,000 certainly makes enough to live a very comfortable life, they’re in a different world than one making $600 million a year. In order to reflect the real differences between the rich and the super-rich, we need to go back to the highest rates we had during the most prosperous decades of the 20th century and add significantly more tax brackets. It should get to 90% for people who earn more than $100 million annually.
These three changes certainly won’t solve all of our country’s problems on their own, but they will go a long way in stemming the steady flow of our country’s wealth toward a smaller and smaller group of people, a change that would make both our democracy and our democracy better. Our economy is more stable. The tax law can be a powerful tool for social and economic change. We just need to use it more effectively.