TaxNotes – Lawrence Zelenak: 1924, 2021: Taxes of the Ultrarich, and Mark-to-Market Reforms (August 11, 2021)

Lawrence Zelenak has published an article on TaxNotes, titled “Taxes of the Ultrarich, and Mark-to-Market Reforms.” The article begins as follows:

On June 8 ProPublica revealed that it had “obtained a vast trove of Internal Revenue Servicedata on the tax returns of thousands of the nation’s wealthiest people covering more than 15 years.”1 The ProPublica story “compared how much in taxes the 25 richest Americans paid each year [from 2014 through 2018] to how much Forbes estimated their wealth grew in that same time period.” The story called the ratio of tax to wealth increase the billionaires’ “true tax rate.” During the five years in question, the wealth of the 25 rose by a collective $401 billion, and they paid a total of $13.6 billion in federal income tax, resulting in a true tax rate of 3.4 percent for the group. Interesting details on individuals included that Warren Buffett had the lowest true tax rate in the group (0.1 percent) and that Jeff Bezos’s tax return income was so low in 2011 (when his net worth was about $18 billion) that he claimed and received a $4,000 child tax credit.

The article explained that the primary cause of the discrepancy between huge net worth increases and much smaller tax liabilities was the tax system’s failure to treat unrealized appreciation as income, abetted by the tendency of the corporations on whose stock the wealth of the 25 was based to pay little or nothing by way of dividends and to pay relatively small (in some cases, merely nominal) salaries to their ultrawealthy founders. Although the disconnect between wealth and tax bills could be addressed outside the income tax by a wealth tax, the article explained that it could also be addressed within the income tax by mark-to-market taxation of the ultrawealthy. In that connection the article noted a 2019 discussion paper by Sen. Ron Wyden, D-Ore., now the Finance Committee chair, proposing exactly that.2

Click here to see the full article: “1924, 2021: Taxes of the Ultrarich, and Mark-to-Market Reforms”

Posted by Marin Larkin, Associate Editor, Wealth Strategies Journal.

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