It’s an all-out tax war on the wealthy right now with Democratic candidate Joe Biden and state governors who are reeling from Covid-shutdowns proposing a variety of income, capital gains and even new flat and investment transaction taxes that could create a consolidated tax rate as high as 63% for upper middle income citizens.
As election results loom and states begin to dig out from COVID shutdowns that have cost them millions in lost revenues, advisors and tax experts worry that there is no end in sight for new taxes on the last unprotected group in America—wealthy taxpayers.
Rainer Zitelmann, author of “The Rich in Public Opinion: What We Think About Wealth” said America’s virtue signaling around “Eat the Rich” policies and movements is a dangerous slope he has seen fail in socialist countries in Europe over and over again.
“I am surprised at how fast the notion of income redistribution has taken root in America,” said Zitelmann, whose book details the media and public bias against wealthy people who he argues create businesses, employment and wealth that help households avoid poverty and reach the middle class.
“Envy and scapegoatism are significant motives for wealth distribution, but we find that it does not lead to more equality or less envy,” Zitelman said. “Your loss does not lead to my gain."
Former Vice President Biden and his advisors disagree and have proposed a tax plan to impose payroll taxes on income above $400,000 amounting to an additional 6.2% in tax on top of a 39.6% marginal rate. For business owners and other self-employed people, both the employer and employee side of the tax must be paid, resulting in an additional 12.4% in tax on top of the 39.6% marginal rate, leading to an actual top marginal rate of 53%.
Biden also wants to raise the long-term capital gains tax rates and taxes on dividends to 39.6% for those making more than $1 million a year. That would be an increase from the current 23.8%, marking the biggest hike in capital gains taxes in history.
Some experts have questioned the timing of tax cuts in a period when the economy remains extremely weak. In a webcast yeasterday, David Rosenberg of Rosenberg Research said he thought tax increases were coming but added that he expected a Biden administration to wait until the economy recovered.
States such as New Jersey, California and Illinois have created or are attempting to pass additional wealth taxes that will push wealthy taxpayers’ marginal rates as high as 63%.
The problem is the government forgets that “many wealthy clients are portable. They will leave from high tax states and move and even relocate businesses if possible to avoid crazy levels of taxation,” said Matt Chancey, an advisor with Micel Financial in Tampa, FL. “Then what are those states stuck with? A bunch of middle- and low-income people who can't pay higher taxes. You can't tax your way out of the problem using the rich.”