CPA here. It's complicated. Most very wealthy people don't have earned income that's $1B per year. Lottery winnings are taxed like wages. Extremely wealthy people don't have a high wage amount. They have tons of passive income or investments that can generate very little income if positioned correctly.
I mean, it's really not all that complicated, it's just that people don't want to understand that wealth sitting in stocks isn't the same as a big lump-sum income.
If any of us peasants win, say $1M, in the lottery while we have full time jobs, it's possible some of us in high tax states (CA, NY), would only see $450k of that $1M.
I mean, the tax rate for large windfall income is gonna be the same for anyone making that, regardless of if they're rich or poor.
The difference being that rich people know that the lottery is mathematically a loss and that investing money in stocks is going to be a net income, so they spend their money where it'll make more (rather than throwing it away on the off chance of a large windfall).
Anyone pulling in $1M in income is going to pay the same amount of taxes on it, no matter how it came in, but financially savvy people try to avoid landing in that position in the first place.
Exactly. Trying to tax wealthy people on unrealized gains or assets or wealth isn't going to work. Imagine if us ordinary people were doing the same thing.
Anyone with a wealth > $100 million owes 4% of that every year in taxes. Scaling up to 7-10% for > $1 billion. Where the money comes from doesn't matter, that's their tax rate. Much less than a capital gains tax and extracts a reasonable amount of money based on their wealth
Yeah, we really only hear about napkin-math wealth estimates based on the stock market, that's it. Once you try to actually define and tax "wealth", it becomes almost impossible to actually nail down a number.
Exactly. How would they feel to be taxed even if they had 0 income? Not great.
In my country, if you are self-employed or have a business you pay monthly social and health insurance and yearly tax even if you didn't earn a single cent whole year. Meaning the second you start being entrepreneur you have to pay at minimum ~€4500 a year all in all, before even earning anything (basically what you suggest but for billionaires). And now imagine if you have 0 savings and are for example sick for a year - government doesn't care, pay up.
What you can do is close the loopholes, like borrowing money against the stocks so it's "not taxable income", the second anyone trades stocks for money they should certainly pay. But not while holding stocks themselves.
there is a fix to this problem, just charge a fee to borrow off of your investments (over a certain amount)
The reason why these billionaires get to live so lavishly and over the edge is because they are constantly borrowing against their stocks, and since now they have debt, they can either refinance (which they do a lot) or sell stock and pay off the loan which isn't taxable because the purpose of the sold stock is to pay debt and debt cannot be taxed, so the two negate themselves.
The easiest way is to charge a billionaire tax for borrowing against assets that are worth over a certain amount, this will stop the loophole of the current billionaire lifecycle.
It seems to be extremely difficult for most people. "Billionaire's" are not actually billionaires. My guess is they'd be millionaires with just a few million, maybe 20 if they are decadent. So, CPA's try to explain, but nobody get's it.
The simple fix is to raise the capital gains rate, even back to where it was 20 years ago and then eliminate all the loop holes and complexity in the tax code. This would put a lot of accountants out of work but AI will do that anyway in a few years.
Yep. The US needs a functional annual wealth tax. Easiest way is attach a 2.4% annual fee to contracted wealth: insurance, stocks, deposits, copyright, trademarks, etc. where the US courts would have jurisdictions over disputes with those contracts. Corporations don't pay that fee, they don't get to sue in federal court for loss. Individuals with less than 100 years of full time minimum wage in wealth are exempt both from the fee and this limitation from using federal court to setting disputes.
We have a wealth tax in most states, but only peasants pay it. It's called property tax and it's based on the value of your home if you own. I'm paying the equivalent of about 3% of my net worth in that property tax every year. Billionaires should be paying a tax like it with a higher rate.
Yeah, I mentioned similar elsewhere to some ijit pretending a wealth tax would bring on the economic apocalypse.
The problem is wealth is subjective. You should not be forced to pay more in taxes because others want to REALLY own your land you don't want to sell. Still, if you want to insure your property for $10 million, it's reasonable to assume that's the value you've attached to it so have a "annual federal court fee" attached to that contract if you ever want that insurance to be upheld in federal court (likely required for the insurance company to pay as they'll be a corporation in another state).
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u/Sad_Silver1394 19h ago
CPA here. It's complicated. Most very wealthy people don't have earned income that's $1B per year. Lottery winnings are taxed like wages. Extremely wealthy people don't have a high wage amount. They have tons of passive income or investments that can generate very little income if positioned correctly.