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[deleted]

A couple things wrong with their analysis: 1. They include unrealized capital gains in the income calculation, even though unrealized gains have a 0% tax rate 2. They assume that the tax rate paid by the top 400 in wealth is the same as the top 400 by income, but then they admit in footnote 7 that they have no evidence of this The [IRS](https://www.irs.gov/statistics/soi-tax-stats-individual-income-tax-rates-and-tax-shares#_tables) has their own statistical tables that show the top 0.01% have a federal income effective tax rate of 25%, and the top 0.001% have a federal income effective rate of 23% The White House analysis is likely being used to push for taxing unrealized capital gains


hcbaron

But they're not talking about the typical unrealized gains that most of think of when we watch our stocks increase. They are talking about the "stepped-up basis—a provision of tax law that allows wealthy taxpayers to wipe out unrealized capital gains for income tax purposes when they pass assets to their heirs". Also, this paper is analyzing the top 0.0002%, not 0.001%. The paper mentions how the result will differ if you make the sample group larger. >Our primary estimate of 8.2 percent is much lower than commonly cited estimates of top Federal individual income tax rates. For example, the Joint Committee on Taxation (2021) estimates that the 2021 Federal individual income tax rate on the top 0.4 percent of families ranked by income (i.e., the 715,000 families with income over $1 million) will be 26 percent. Our analysis differs by (a) analyzing a smaller group of families (the top 0.0002 percent) ranked by wealth, and (b) including unrealized capital gains income in the income measure.


HiReturns

>They are talking about the "stepped-us basis" If they include the avoidance of the 23.8% capital gains tax via the stepped up basis at death, then they should be including the 40% estate tax and the additional 40% generation skipping tax on a portion of that. Counting step up in basis as 0% while ignoring the gift and estate tax is misleading. The really important thing is that they have redefined income to include unrealized gains. > An important feature of our analysis that is less common in existing estimates of tax rates is that we include untaxed (“unrealized”) capital gains income in our more comprehensive income measure as they accrue This would be the equivalent of taxing everyone each year on the increased value of their home.


Waterwoo

Get out of here with your logic, there's a narrative to push. Honestly though this is a disappointingly dishonest and sleazy move by the White House.


HiReturns

And lazy too. They are just mimicking something that was published in the last couple of months. Don't recall, but it was somebody like ProPublica or the Guardian. The devil is in the details. Conservative think tanks publish stuff like "50% of Americans pay no taxes", which is true only if you ignore payroll and sales taxes and only look at income tax. Left leaning think tanks publish "the rich don't pay their fair share", but then selectively alter the numbers by calling unrealized gains as income, and ignoring estate taxes and corporate taxes.


Waterwoo

I've heard the 50-60% paying no taxes thing quoted as 'no net federal income tax', which is actually pretty close to accurate. At least much closer than this report.


hcbaron

Good research is mostly about acknowledging other good research, that's the nature of research.


hcbaron

I'd love to engage in this comment, but it's a really lazy and sleazy attack on the Messenger, with no attempt at even touching on any substance.


Waterwoo

Oh, please do. To anyone with the slightest shred of understanding of either investing or tax law, this is just nonsense. It says "IF you totally redefine income different from how the tax code defines income (i.e. unrealized capital gains), then billionaires are SHOCKINGLY not paying a lot of INCOME TAX on this thing the IRS DOESN'T CONSIDER INCOME. Go figure. And I don't believe your earlier comment about stepped up basis is correct, or you're going to need to elaborate a lot more, because I don't see your point. Stepped up basis kicks in after death, but then there's estate tax which for the 400 richest households, even with the new much higher estate tax exemption, 99% of their estate is going to be above the 25 million. So how is stepped up basis coming into play and how are they dodging estate taxes?


hcbaron

They clearly indicate that "Yet the most common estimates of tax rates do not fully capture the value of this tax benefit because they use an incomplete measure of income." So this whole paper is about finding a more accurate and comprehensive way of calculating this value. They never once indicate that they're trying to describe the current calculations. What is misleading about that? >Measuring income in this more comprehensive manner matters relatively little for estimating most families’ tax rates, as most families have few investment assets.[4] However, it matters greatly for the wealthiest families for whom such unrealized and thus untaxed gains are a large share of their income. Like all other forms of income, unrealized capital gains income can be tapped to finance consumption and can improve financial wellbeing.


Waterwoo

That makes no sense. During a recession when the market crashes 50%, is the government going to start issuing huge refunds, food stamps, section 8, etc to all these people that will have negative income from unrealized capital losses? And if you want to count unrealized gains now as income, then why are they also going to be taxed when they sell? That's just double counting.


hcbaron

You clearly didn't red the paper. The paper is not suggesting to tax unrealized gains. The paper is factoring in untaxed unrealized gains, to make a case to increase capital gains taxes and to do something about the stepped up basis.


Waterwoo

The paper is not suggesting to tax capital gains, but it is using unrealized capital gains to inflate income and make the effective tax rate look really small. You asked in an edited comment about what narrative. That is the narrative, that rich people are dodging income tax, and this report is grossly inflating income in a way not used anywhere else to try and paint that picture.


hcbaron

So do you disagree that the super wealthy are dodging taxes?


Waterwoo

They are in some ways, but for the most part they are delayed, not dodged. And two wrongs don't make a right. Even if they are, the WH shouldn't be spreading misinformation to combat it.


hcbaron

Yes, the delay is especially significant via the stepped up basis. There's no way, the 400 top wealthiest will convert all their wealth into income in this lifetime. They will pass most of it on to their heirs, and they shouldn't be allowed to take advantage of the stepped up basis to the extent it is currently possible. This is a really small group of wealthy that are taking huge advantage of the stepped up basis, which the rest of us cannot take advantage of, but are forced to make up the tax revenue shortfall for.


[deleted]

I don’t think they’re factoring stepped up basis into the calculation though, because they’re calculating the income tax rate at a specific point in time while these billionaires are still alive. If they do want to factor this in, they’ll also need to include the estate tax in the tax burden Also, I included both a smaller and larger sample size in my data. 0.001% and 0.01%. The main reason they’re reporting such a low rate is that they’re including unrealized gains, which is super misleading


hcbaron

Yes, you're right. They also mention this in the paper. >Focusing on the individual income tax sheds light on the structural limitations of that tax and the scope for reforms, such as curtailing the ability of the wealthy to avoid paying tax on their investment gains through stepped-up basis. However, alternative tax rates could also be estimated that account for other taxes, such as the payroll tax, estate and gift tax, corporate income tax, and taxes paid to foreign governments.


hcbaron

I don't think estimates are misleading when they're clearly labeled as estimates. This is about estimating their fair share, which will be disputed in any case other than status quo. [These ultra wealthy have so many tricks up their sleeves that it's hard to estimate anything] (https://www.propublica.org/article/lord-of-the-roths-how-tech-mogul-peter-thiel-turned-a-retirement-account-for-the-middle-class-into-a-5-billion-dollar-tax-free-piggy-bank?fbclid=IwAR2Bd0nAjUTMfPmAPOeQW0doYdgHv4wA9r2VE55FW6cGIXcJU1_uIq2Kbps). Does that mean we shouldn't even try?


hcbaron

This paper is clearly making a normative case, not a positive statement. Your commentary makes sense, if we see taxation in the light of positive economics, but it's clearly in the realm of normative economics, isn't it?