Bill Gates, Elizabeth Warren and Bernie Sanders all want the rich to pay more taxes, but Gates is saying what the Democratic candidates appear to be thinking: Go for the capital gains rate.
Gates, the billionaire co-founder of Microsoft Corp. and the world’s second-richest man, has suggested that an increase in the capital gains tax rate is the simplest and most direct way to target America’s wealth.
And tax experts say that’s essentially what Senators Warren and Sanders, both seeking the 2020 Democratic presidential nomination, are doing with her wealth tax and his expansion of the estate tax. They’re just packaging it in a way that’s easier to sell on the campaign trail.
Democratic tax proposals are simply a “stealth attack” on the preferential rate for capital gains, said Christopher Faricy, a political science professor focused on tax and inequality at Syracuse University.
Source of Riches
The very wealthiest of taxpayers derive the bulk of their riches not from wages or salaries but from capital gains profits on investments in stocks, property or other assets. Unlike labor income, which is taxed at a top rate of 37 percent, profits on assets held for at least a year before being sold bear a top rate of 20 percent.
In 2018, nearly 69 percent, or more than $584 billion, of all long-term capital gains went to the top 1 percent of of the 1.1 million wealthiest US filers, according to the Urban-Brookings Tax Policy Center. The richest Americans got the lion’s share, with the top 0.1 percent of the 110,000 wealthiest filers scoring more than three quarters of that total.
“Most of the wealth gap is due to capital gains,” said Mark Spiegel, who runs a small hedge fund at Stanphyl Capital Management. “Nobody’s earning $50 million in labor income.”
Warren’s “Ultra-Millionaire Tax” plan targets capital gains without saying so and taxes them differently. She would require the top 75,000 wealthiest U.S. households to pay an annual 2 percent levy on each dollar of net worth over $50 million. Billionaires would pay an additional 1 percent tax over that.
By going after accumulated wealth at death, Sanders also targets the fruits of capital gains with his proposal to dramatically expand the estate tax, including imposing a new 77 percent rate on the portion of estates worth more than $1 billion. His plan would also lower the threshold at which the estate tax kicks in, to more than $3.5 million from the current $11 million, a level doubled in the GOP 2017 tax overhaul, and impose a 45 percent rate on estates worth as much as $10 million.