How rich have America’s richest become?
These days, we like to think we know the answer. After all, we get from investigators at Forbes every fall a detailed annual list of the fortunes of America’s richest 400. And Forbes also publishes an annual list of the world’s billionaires — a scorecard Americans dominate — as well as a “real-time” list of billionaire fortunes based on daily stock trading.
Our wealth stats don’t end there. Business reporters at Bloomberg publish a competing “Billionaires Index,” with figures proudly “updated at the close of every trading day in New York.” Eight of the ten richest billionaires on Bloomberg’s list carry U.S. passports. The combined fortune, at last look, of these eight: $1.22 trillion.
The combined fortune of the entire Forbes 400? Forbes put that total last fall at a sleek $4.5 trillion. Let’s pause here a moment to reflect on that “trillion” piece. The typical American, the journalists at ProPublica point out, would have to labor for 25,000 years to make a mere $1 billion.
Those ProPublica journalists last year came upon what they describe as “a vast trove of Internal Revenue Service data on the tax returns of thousands of the nation’s wealthiest people.” America’s wealthiest, ProPublica’s initial analysis of that trove found, are paying in federal income taxes “only a tiny fraction of the hundreds of millions, if not billions, their fortunes grow each year.”
ProPublica has just released a second analytical bite at that IRS data-trove apple, a much deeper dive into who among our most affluent are pulling down the biggest bucks — and paying Uncle Sam the fewest bucks at tax time. The new ProPublica analysis has plenty to offer on both these fronts.
From 2013 through 2018, the span the ProPublica data cover, tech billionaires pocketed 10 of the nation’s 15 highest incomes. About a fifth of the highest 400 incomes belonged to hedge fund managers. None of the top 400 averaged less than $110 million a year, and, together, the 400 paid an average 22 percent of their incomes in federal income tax.
At the same time, Americans who were averaging far less in income — between $2 million and $5 million — were paying an average 29 percent of their incomes in federal income tax. In the United States today, the closer you get to the rarefied air of the nation’s richest, the smaller the tax bite on your income.
“In theory, our tax system is designed to tax the rich at higher rates than everyone else. That’s not the way it works at the loftiest incomes,” as ProPublica puts it. “The U.S. tax system is making inequality worse.”
What could ease that inequality, of course, would be a national commitment to seriously tax the wealth of our wealthiest. And such a commitment, the latest ProPublica numbers suggest, could raise substantially more revenue than tax-the-rich advocates have so far been calculating. Why? The standard media wealth scorecards may significantly underestimate the wealth at America’s economic summit.
Evidence for that underestimating, notes veteran tax attorney Bob Lord, appears in the IRS data that ProPublica has been analyzing. Lord, an Institute for Policy Studies associate fellow, points to Walmart heir Steuart Walton as one example. Over the 2013-2018 span, the ProPublica numbers show, Walton averaged $252 million a year, most all likely from dividends.
Yet Forbes does not list Steuart Walton’s personal fortune as one of the nation’s 400 loftiest, and other wealth bean-counters have put his fortune at just $300 million.
Another heir on the ProPublica list of the nation’s 400 highest incomes, Fayez Sarofim, averaged $729 million in income a year from 2013 through 2018. He paid a modest 23 percent of that income in federal income tax. In other words, he cleared after taxes well over half a billion a year. Yet Forbes slots his current wealth at just $1.68 billion. How could someone making that much, tax analyst Lord asks, end up with so little?
“It’s nearly impossible,” he notes, “to reconcile those numbers.”
If our nation’s richest are indeed sitting on substantially more wealth that media scorekeepers give them credit for holding, then a tax on all the wealth of the wealthy — something we don’t have now — would raise substantially more in tax revenue than expected.
And such a tax seems to be inching closer to our political center stage. The White House has proposed a “Billionaires’ Minimum Income Tax,” a plan that would subject the “unrealized” capital gains of the rich — the annual increases in the value of their stocks, for instance — to annual federal taxes. Those annual increases in the wealth of our wealthy currently go completely untaxed.
Average Americans, meanwhile, do pay higher taxes when the prime source of their wealth — their home — increases in value.
Where does this all leave us? The case for taxing the rich has never been stronger. Our wealthiest have been pulling the wool over our eyes. We need to start pulling the excess out of their pockets.
Sam Pizzigati co-edits Inequality.org. His latest books include The Case for a Maximum Wage and The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970. Follow him at @Too_Much_Online.