Last week Democrats released the details of their upcoming budget reconciliation deal, but thanks to the work of a group of Democrats in the House and Senate, the revised $1.5 trillion dollar plan falls far short of the ambitious plans set by President Biden and ultimately fails to address the inequities built into our tax code that continue to exacerbate inequality.
While the updated plan does increase taxes on wealthy individuals and large corporations, it only tinkers at the edges of a tax code designed for the wealthy at the expense of working Americans. Chief among them is the plan to only tax capital gains income by an additional 5% — up to a total of 25% — a far cry from Biden’s initial plan to tax capital gains income above $1 million at the same rate as ordinary income at 39.6%. As a wealthy individual, I assure you that there’s absolutely no reason to keep this absurd giveaway to the rich.
Unlike those who work for a paycheck, most well-off individuals can easily make a living through their investments, and the capital gains made off those investments are taxed at a lower rate than earned income. This means that wealthy individuals pay a far lower tax rate than working Americans, for doing far less to contribute to the productivity of the country. How can that possibly be right?
Take the last year and a half. While so many struggled, wealthy people like me continued to make a killing. My net worth has drastically increased since the beginning of the COVID-19 pandemic due to the success of the market, and it’s only increasing because the gains I make in the market are taxed at a significantly low rate. This is one of the many ways our system institutionally favors wealthy Americans and helps them get ahead once they’re already ahead.
All income should be treated the same, regardless of how it’s earned. Splitting it into two separate categories is extremely unfair and serves no purpose but to give wealthy folks another advantage. Politicians that defend the lower rate for capital gains taxes have long emphasized that the special rate is necessary to encourage spending in the economy. But the idea that wealthy individuals somehow will spend more only if they pay less in taxes is part of the same misguided logic that justified decades of trickle- down economics.
In reality, when rich people are flush with extra cash, they don’t spend it like most working families do. They simply invest it or hand it over to their wealth managers who stash it in places most working people will never have access to. This is because they already have more than enough money to spend on whatever they want whenever they want. Large corporations engage in a similar process, where they give their C-suite executives a bonus rather than raise the wages of their employees or invest in their own infrastructure.
Democrats cannot continue to allow our government to actively contribute to growing inequality. Our country is facing the largest disparity of wealth in the last 100 years, and things are only getting worse. However, rather than working on policies and legislation that will address this crisis, some members of the Democratic party are fighting changes to our tax code that would alleviate the burden on everyday Americans.
If the Committee’s proposal becomes law, billionaires in America will pay a lower tax rate than working people and inequality, the root cause of social unrest, will continue to destabilize the country. We must roll back the worst, most regressive parts of our tax code, from the low top marginal rates, raising capital gains rates, and eliminating the stepped-up basis. Anything that moves us towards a tax code where the rich can’t game the system to pay lower rates than the average American.
Wealthy Americans aren’t currently taxed enough, we can afford to pay more, and we must ensure that we pay more as part of the upcoming budget deal so we can invest in our citizens and our communities. The American people deserve better, and we can do better. We just need to tax the rich.
Drew Pomerance is a Co-Founding Partner of Roxborough, Pomerance, Nye & Adreani, a boutique law firm in Woodland Hills, specializing in representing small and medium-sized businesses in complex business and insurance litigation. He’s a native Californian, UC Hastings Law School graduate, and member of the Patriotic Millionaires.