Speaker 1: Let's start today with some meaty policy analysis when it comes to taxing the
rich.
Please don't tune out.
No, no, no, don't click away.
No.
In all seriousness, this morning, I watched a little bit of our friend Sam Sanders appearance
on the Patrick Bat David Show, a program I did a month or six weeks ago or so.
And one of the topics that came up with them was about what should tax rates be and taxing
the rich.
And Sam says yes and Patrick says no.
And okay, I don't want in this segment to delve into the should we or shouldn't we or
the morals of the ethics.
What I simply want to address here is if we wanted to tax the ultra wealthy more, how
would we do it effectively?
And what I mean by effectively is it's very easy to say raise the top income tax rate.
But then you realize, wait a second, a lot of the ultra wealthy aren't earning income
in wages subject to that rate.
So that's not really going to help.
And in the background of all of this is the news that Democratic senators, as HuffPost
reports, are urging the Biden administration to go after what they call ultra wealthy tax
dodgers.
Most of this is specifically related to using trusts and other financial vehicles when it
comes to inheritance, when it comes to inheritance and what we might call estate tax or some
like to call it the death tax.
So what I want to do in this segment, just to provide a little bit of food for thought,
is give a bunch of different changes that could be made to the tax code that would help
tax the ultra wealthy.
Now, I know that many of you are going to write to me and you're going to say, But,
David, that method wouldn't work because of this reason, and this other method wouldn't
work because of that other reason.
This is very much like when we look at an issue like gun violence, no one policy would
cover all mass shootings and prevent every single one.
When we talk about waiting periods, mandatory liability insurance, limiting certain firearms
only to those over age 25, requiring relicensing and more extensive training.
We have this list that I've put together of 10 to 12 different items that could be put
in place.
No single one would prevent every mass shooting.
And in a country of 330 million people, 340 million people, no matter what you do, there
might still be some mass shootings.
But the point is, what's the lowest hanging fruit?
What can we do to, in the case of the tax element, collect more from the ultra wealthy?
So here is the list and I'll tell you how they would work and their limits.
And again, no, there is no silver bullet here.
So.
Okay, should we raise the top marginal income tax rate?
Yeah, we probably should.
Saying that at I don't remember where it is right now.
550,000 or so dollars a year.
You hit the top tax rate of 37%.
And from there up there's no more brackets and no higher marginal tax rates.
That's probably too low.
There should probably be some more brackets with some higher rates, but that won't get
us all of that ultra rich tax revenue that we might be seeking because a lot of the ultra
wealthy aren't earning money via wages.
They're also able to reduce taxes through deductions and tax credits, etc..
Okay, So one tool is you raise the top marginal tax rate.
It's not going to do everything you want it to do.
Secondly, you can look at imposing a wealth tax on certain assets.
Now that is going to it's quite difficult to implement.
I'm honestly not even completely sure that it would pass all legal muster, but it's an
idea that's been proposed.
You impose a wealth tax to try to get at taxation of assets rather than just income.
Now, what are the problems?
Well, what do you do about illiquid assets?
Do you tax the value of fine art?
Who determines what the fine art is worth?
You probably have to exclude an asset like fine art.
And so what this leads to is that those who hold valuable assets can either move assets
to countries with no wealth taxes, invest in assets that are difficult to value or would
be exempted like artwork or rare collectibles.
Okay, but it might do something.
And to be clear, I'm not necessarily advocating for every single one of these policies.
I'm telling you what is on the what is in the toolbox, so to speak.
Number three, there are tax loopholes that could be closed.
One such loophole is the so-called carried interest loophole, however.
There would be some ultra wealthy folks who will find ways to get around that either moving
the types of assets that would have previously benefit benefited from the carried interest
loophole into nontaxable assets like municipal bonds.
Not totally realistic for the hedge fund managers that that would be targeted at.
Admittedly looking at changing business structure, moving certain assets offshore, lobbying for
a new different loophole the next time there's a friendly administration.
So is it a panacea?
No.
But is it a tool?
Absolutely.
Number four, increasing IRS funding to do more audits of the ultra wealthy.
Now, there are some people in that income bracket that are doing everything right.
It's not like with all of these folks, if they were audited, the government would find
that they have underpaid their taxes.
So for those who are legally and correctly avoiding taxes, auditing them isn't going
to make a difference.
But we know that there is significant underpayment in that group and having a more well-funded
IRS not with agents with guns, just audit agents to do audits would certainly claw back
some of that revenue that should have been paid a financial transaction tax.
If you put in place a financial transaction tax, the ultra wealthy who might not earn
any income and pay very little as far as income taxes go but are involved in financial transactions,
they would have to pay a tax on those transactions.
And as with anything else, they could look at stopping the financial transactions in
order to not generate those taxable events.
Moving assets offshore to countries that don't have such a tax or investing in assets not
subjected to that tax certainly could do it.
But it is another tool raising capital gains.
If you are worried about not collecting tax revenue from the ultra wealthy because they
are earning money that is subject to capital gains rather than income tax, you could raise
the tax on capital gains.
It's not a silver bullet.
You could avoid that tax as an ultra rich person by waiting to take any gains or through
other mechanisms.
An alternative minimum tax.
Alternative minimum tax says, listen, if this is your income before deductions, no matter
how many deductions you take, there is a minimum level of tax that you have to pay.
You can't deduct and credit your way all the way down below some certain amount.
That's a good idea.
High earners might still be able to reduce their taxable income significantly through
the tools that do remain available.
But it's a it's a it's a tool.
The alternative minimum tax.
You could look at increasing corporate taxes.
That is a great idea.
That being said, you have to remember that that only applies to certain types of corporations
as corporations.
An LLC is in sole proprietorships.
Those are what are called pass through type entities, and those are governed by the personal
income tax rate, not by the corporate tax rate, but certainly it would make a difference.
So these are all tools that are available, every single one.
Is at risk of being circumvented, at least partially, depending on what tax methods and
strategies you use.
But taken together, much like doing ten or 12 different things about gun safety, it would
have a significant impact in its totality.
Now, this is a separate issue from, as I discussed on the Patrick Bat David Show.
I'm not immediately looking to just raise all sorts of taxes.
What I think is the really the lowest hanging fruit is number one, what are we getting for
the taxes we already pay?
What are the taxes being used for?
And secondly, getting actually closer to the tax rates that are in place simply by focusing
on deductions, credits and loopholes.
But that's a subject subject for a different day.
Last item about this.
Any time that there's a tax proposal.
And you hear, oh, this would raise 10 billion or whatever the case may be.
It's really important to understand whether that estimate of this would generate $10 billion
in tax revenue.
Is it based on a dynamic scoring system?
And what I mean by that is it's very easy to say based on the way people filed their
taxes last year, if we put in place this new tax, it would generate $10 billion.
What needs to be taken into account is that last year, if this tax had been in place,
people might have used a different tax strategy in response to the fact that that tax was
put in place.
So whenever we examine this type of proposal of any kind when it comes to taxes, you want
to dynamically score what it would do by accounting for how people's behavior might change.
Send me your thoughts.
Is this interesting to people?
Let me know.