By Morris Pearl
This year, July 15th marked the new deadline for Americans to file their taxes. While many of our previous Tax Days have come and gone with little to no attention devoted to our country’s vast income inequality, the staggering levels are impossible to ignore this year. Whether it’s working Americans facing a bleak economic future, or people of color disproportionately bearing the brunt of the COVID epidemic, only a small group of Americans are coming out of this crisis ahead: wealthy folks in the top tax brackets.
Thanks to this crisis, and the years of widening inequality that preceded it, the economic outlook for a wealthy person like myself and the average working individual could not be further apart. Millions of Americans are struggling to pay their bills as the real unemployment rate reaches around 20 percent. Over 28 million people are facing possible homelessness as evictions threaten those who are currently unemployed. Simultaneously, the wealth of all American billionaires has surged beyond $584 billion dollars, growing from a total of $2.9 trillion dollars to $3.5 trillion. Wealthy investors like myself, are now even wealthier than we were before the coronavirus crisis began.
But given the precarious economic state of so many people, how are rich people still amassing such enormous wealth?
It’s certainly not by accident. The federal government has spent the past five months of this crisis reassuring wealthy folks that they will do whatever it takes to protect their investments. This is why the Federal Reserve made trillions of dollars available to the big banks which effectively propped up the market when multiple sectors were on the edge of total collapse, why the Trump Administration littered the coronavirus aid package with a massive slush fund for corporations and big businesses, and why the GOP Senate authorized a $135 billion tax giveaway exclusively for millionaires.
However, receiving preferential treatment from the current administration isn’t the only advantage that wealthy folks like me have in this crisis. The ability for wealthy Americans to get ahead, once they’re already ahead, has been institutionalized into our country through our tax code.
Unlike those who work for a living, rich investors make a living through their investments, and conveniently, the capital gains made off these investments are taxed at a lower rate than earned income. This means that wealthy individuals can pay a lower tax rate than working Americans, even though they contribute far less to the productivity of the country. Differentiating income into two separate categories serves no purpose except to make the rich richer, and those who work for a living exactly, poorer.
Politicians and pundits that defend the lower rate for capital gains taxes have long remarked that it’s necessary to encourage spending in the economy. The idea that wealthy individuals consume more is part of the same misguided logic that justified decades of trickle down economics. In reality, when wealthy people have extra capital they tend to invest and save it rather than contribute to the consumer economy. Similarly, when large corporations have extra capital that benefits their owners, and can give their executives a bonus, rather than raising their workers wages or improving business infrastructure.
Economic inequality is built into the foundation of our country, even in something as seemingly mundane as our tax code. Beyond the capital gains rate, loopholes, deductions, and exemptions are some of the other numerous ways in which our tax code has been rigged in favor of wealthy people. In fact, the burden of payment has been skewed so far that after the passage of the 2017 GOP tax cuts, wealthy individuals and businesses paid less taxes than the average working person. Make no mistake, when billionaires and corporations receive tax cuts at this level, they’re leaving you with the bill and making off with the riches.
So, with another Tax Day finally behind us and a year of turmoil ahead as working Americans brace for one of the worst years in modern history, it’s more important than ever that we move to change the unequal tax code that determines who succeeds and who’s left behind.
Morris Pearl, chair of the Patriotic Millionaires, is the former managing director of BlackRock Investments.