President Joe Biden this weekend proved the truth to the old adage that there are “lies, damned lies, and statistics.” Biden is again arguing that the wealthy do not pay their fair share of taxes. However, on Saturday, he made this whopper of a claim: “You know the average tax billionaires pay? Three percent. No billionaire should be paying a lower tax than somebody working as a schoolteacher or a firefighter.” There is no indication where that figure came from, but prior low figures have been based on a highly dubious method of counting unrealized gains as income — a highly controversial proposal for a new massive tax increase.
Politicians have long turned to the “Eat the rich!” battle cry when things are not working out politically or economically. When struggling in the 2020 Democratic presidential primaries, Sen. Elizabeth Warren (D-Mass.) pledged a wealth tax, declaring that she was coming after “the diamonds, the yachts, and the Rembrandts too.” Then-New York City Mayor Bill DeBlasio, another Democratic contender at the time, was barely registering in the polls when he promised that “we will tax the hell out of the wealthy.”
With the start of the election season, we will now again hear the mantra that the wealthy do not pay their fair share in the United States. Many have challenged that popular claim. More than 40% of households pay no federal taxes at all. The top 1% pay forty percent of tax revenues. The top 25% of earners paid roughly 89% of all income taxes in 2020.
On the other side, some will acknowledge this is “technically true,” but they insist that this does not include such things as sales taxes and ignores the huge disparity in the proportion of income earned.
We can have that debate in good faith in the coming election. However, President Biden’s latest statistic is truly beyond the pale even for politics. Previously, the White House released an 8% claim, which was also dubious. This is the first time many of us have seen the three precent claim.
However, the earlier claim did show how it was created and how the President conceals the rather creative measures used to mislead the public.
Last month, the White House issued a fact sheet called “The Biden Economic Plan Is Working,” which used unrealized gains – a potential profit on an unsold asset – as income to lower the estimate on how much billionaires pay. It then declared to the shock of many that “in a typical year, billionaires pay an average tax rate of just 8%.”
Now this may come as a surprise but I am no billionaire. I have no expectation to be a billionaire. Some of my best friends are NOT billionaires. However, if the President is going to push for higher taxes, he owes a modicum of honesty to the voters in making his case.
The current estimate of some tax experts is that the highest income earners pay an average in the mid 20s. Ironically, if true, that is where Biden says it should be.
While that figure can be debated, the inclusion of unearned income is more than creative, it is downright dishonest. Some of us have raised legal and practical objections to the proposal to include unrealized gains in tax bills.
Income tax focuses on actual income or gains acquired by citizens in any given year. That includes “capital gains” when you sell an asset for more than its original purchase price. It is “realized” when you sell it.
Democrats now are seeking to tax “unrealized gains,” even though an asset has not been sold and could go down in value. It is a more sophisticated version of Sen. Elizabeth Warren’s wealth tax, but it is arguably unconstitutional.
The Biden White House insists this is merely “a prepayment of tax obligations these households will owe when they later realize their gains. This approach means that the very wealthiest Americans pay taxes as they go, just like everyone else, and eliminates the inefficient sheltering of income for decades or generations.” Framing the tax of assets as a pre-payment still leaves it a tax on current wealth rather than income.
There is also the daunting logistical task of valuation and why some assets may be counted over other assets.
The same is true about a home. A family house likely will grow in value, and that value can be captured as a property tax by states. Yet the federal government cannot also take that value as a “prepayment of tax obligations” on an asset that might go down in value or not be sold for decades.
The targeting of billionaires is a brilliant way to get the public to accept a new type of tax. Once allowed, though, it can then be used on any asset and against any tax bracket to tax “unrealized gains.” If history shows anything, it is that the government tends to operate like a gas in a closed space: Expand the space, and the gas will fill it evenly.
The three percent claim of President Biden is only the latest statistical sleight of hand on tax politics. However, if he is going to use the statistic, he will have to more than double it and then acknowledge that he is using a measure for taxable wealth that is not recognized under the United States tax code.
The claim seems to suggest that Biden’s flubbed line in 2019 may actually now be an official policy: “We choose truth over facts.”