Capital gains in the US are taxed at a maximum rate of 20%[0] for long term holdings, vs income tax rates, which can go up to 37%.
Donations are also something that anyone can use to lower their own taxes, it's line 40 of the 1040 form.
So one can easily change the title to claim that the super wealthy donate more, but I suspect that's not as much of an eye-grabber of a headline.
There may be something to be said about donating to your own non-profits, but that's not what this article is about.
[0] https://www.nerdwallet.com/article/taxes/capital-gains-tax-r...
They used actual income... but not for the 3.4% figure that's in the headline. When using actual income (i.e. personal income and cap gains) to calculate tax rate, they ProPublica article said:
> Collectively, the top 400 paid an average tax rate of 22% from 2013 to 2018.
So... where did they get the 3.4% figure that's in the headline? By including unrealized cap gains:
> Then they pay very little in tax when it’s measured against their growing wealth. The top 25 wealthiest Americans got $401 billion richer from 2014 to 2018, but paid just $13.6 billion in federal income taxes, a “true tax rate,” as we called it, of 3.4%.
What's a "true tax rate?", you ask?
> To capture the financial reality of the richest Americans, ProPublica undertook an analysis that has never been done before. We compared how much in taxes the 25 richest Americans paid each year to how much Forbes estimated their wealth grew in that same time period. We’re going to call this their true tax rate.
In other words, ProPublica invented the term 'true tax rate' to represent a fake tax rate that treats unrealized cap gains as income. The Guardian then wrote a headline that conflates the fake tax rate with the real tax rate.
Whenever you find yourself believing something that's not true, be sure to take a hard look at the source who mislead you. You'll find that it was rarely by mistake.
But yeah "We’re going to call this their true tax rate" is amateur hour. Who even allowed this crap to be published?
This is false. It used to be less false, but now is mostly false.
In order to get any tax advantage from donations, you must itemize as all hyper rich do. Full stop. If you take the standard deduction as almost everyone else does (more than 90 %) then you get nothing for your charitable giving.
Note that when the hyper rich do give and get credit it is very often not to organizations that are very "charitable" at all. If you don't believe this to be true simply look up what a how "private foundations" and particularly "donor advised funds" work.
“As we showed last year, the richest avoid income when they can. Then they pay very little in tax when it’s measured against their growing wealth. The top 25 wealthiest Americans got $401 billion richer from 2014 to 2018, but paid just $13.6 billion in federal income taxes, a “true tax rate,” as we called it, of 3.4%.”
"Collectively, the top 400 paid an average tax rate of 22% from 2013 to 2018."
"The top 25 wealthiest Americans got $401 billion richer from 2014 to 2018, but paid just $13.6 billion in federal income taxes, a “true tax rate,” as we called it, of 3.4%"
It doesn't surprise me that billionaires pay substantially lower rates than long-term capital gains would imply they should.
> Billionaires in tech pay the lowest tax rate, an average of 17% of their income
That seems to be > 3.4%
If on the other hand you think unrealized gains aren’t important, then you should be thinking of inequality in terms of something else, like consumption. But consumption inequality is both much smaller absolutely and much slower growing than wealth inequality; it doesn’t make a good political rallying point.
Here's a video from 2013, that outlines exactly how much tax Warren Buffet is paying. You can disagree with Schiff on his other ideas, but this particular analysis is spot on.
A couple points about common rebuttals:
"It's not liquid so it's hard for them to pay taxes on it" - we already tax illiquid things like property taxes and when people get income that's not cash, like having debt forgiven or being given a gift of stocks. And people who have debt forgiven or are given stocks as income frequently aren't as likely to have cash to simply pay the taxes when compared to these extremely wealthy owners of capital.
"it might go back down and then they paid taxes on something they couldn't realize" - this applies to property taxes too, fwiw. But also, we deal with similar issues already - if you sell a stock at a loss, you can use it to reduce your taxable income. There's workarounds here if we are at all willing to attempt to tackle this.
And it's worth noting that, sure, this might be taxed when they do eventually sell, but:
1. there is not always a when. You can do lots of interesting things with assets like this, such as borrow against them.
2. money now is worth more than money later. Letting people defer paying taxes on unrealized capital gains is VERY generous tax treatment.
It's also worth noting that this doesn't have to make life hard for John Smith, Dirt Farmer, who owns $5000 of SPY. Just do what we do for other common scenarios like this - for instance, not having to pay capital gains tax on your first $X of cap gains for your primary residence.
- He sells some of the land to pay the taxes.
- He takes out a loan to pay the taxes.
- We make a special carve-out for people in that situation so that the tax doesn't apply to them.
The third solution seems kind of fake to me. "We don't like the results of this set of rules, so we're going to make exceptions for all the results that we don't like." Maybe it's telling us that the rules aren't all that great?
> money now is worth more than money later. Letting people defer paying taxes on unrealized capital gains is VERY generous tax treatment.
They don't have the money yet. Charging them tax on money they haven't even received yet seems like very ungenerous tax treatment - abusive, even. It only makes sense if you have already defined unrealized capital gains to be income - but that's begging the question.
Tax law does that all the time. Maybe you've heard of tax brackets. It's so that people who earn less pay a smaller tax rate. I don't see the trouble with that. It's applied in the other direction as well, e.g. with a maximum dollar value with medicare.
Warren Buffett is worth $100B. So if Berkshire Hathaway stock went up 10% in 2022, they'd say Warren Buffett made $10 billion in income, even if he didn't sell a single share.
Obviously extremely misleading and if I were more cynical, I'd accuse them of doing this only to push a political narrative or agenda rather than to report the facts as they are.