Billionaires Have Too Much Economic and Political Power

America’s handful of billionaires were as of July 2024 worth a collective $6 trillion, a new record. Their enormous resources mean they can impact whole industries and even the whole economy through personal decisions; and set the terms of debate, control public policy and elect preferred candidates with their campaign contributions. Stronger campaign finance would diminish their political power, but the most direct way of curbing the outsized influence of billionaires is to more effectively tax them.

Billionaires Make Money Differently Than Average Workers

Billionaires get their money differently than other people do. While most of us make our money from a job, billionaires and other ultra-wealthy individuals live off the income created by wealth, such as interest, dividends and—most importantly—capital gains. (A capital gain is the increase in the value of an investment over its purchase price.) Because our tax system is not set up to effectively tax this kind of income, billionaires can go some years paying zero federal income taxes and when all their income is counted, consistently pay lower taxes than middle-class families. 

We Need Effective Taxes to Fairly and Effectively Tax Billionaires

Most of the income created by wealth—such as dividends, interest and rent—is already taxed (albeit often at a significantly lower rate than work income). But capital gains on unsold investments are not taxed at all, even though it’s often the biggest source of income for billionaires and other members of the super-wealthy class. Such gains are only taxed (again, at a discount) when the underlying investment is sold (the gain is “realized”). But billionaires don’t need to sell to benefit: they can live off low-cost loans secured against their rising fortunes and live luxuriously tax-free. Wall Street even has a name for this strategy: Buy, borrow, die. (The dying part refers to the tax-free status of inherited gains.)

The Biden-Harris Administration & A Key Democratic Senator Have Both Proposed New Billionaire Taxes

The Biden-Harris administration and the chairman of the Senate Finance Committee, Ron Wyden (D-OR), have both proposed new taxes on the nation’s handful of wealthiest households. With some differences in mechanism, the plans would both annually tax all of those hyper-rich taxpayers’ capital gains, both realized and unrealized—thus better aligning our tax system with the economic realities of the ultra-wealthy. Both taxes would raise over half a trillion dollars over 10 years, exclusively from the richest people in the country. The tax revenue could be used to lower costs and increase opportunities for ordinary Americans, as well as reduce billionaires’ overwhelming power.