Disclaimer: This article is neither a criticism nor a defense of billionaires. The same disclaimer applies to the Internal Revenue Service. What it is, is a refutation of Joe Biden and the Democrat Party’s continuing claim that America’s billionaires pay just 8 percent in taxes. That is categorically false.
Here was Biden in early January:
Look, folks, you know how many billionaires we have in America today? One thousand. You know what their average rate — tax rate — federal tax rate is? Federal tax rate is 8.5 percent. Raise your hand if you’d trade your tax rate for 8.5 percent. I’m serious. Think about this. There’d be $40 billion raised if they even pay 25 percent.
Biden might have been serious — but he was also either lying, ill-informed, or woefully confused.
Even Glenn Kessler, the Washington Post‘s left-wing “fact checker,” said the claim isn’t true (emphasis, mine).
There are some “facts” that Biden likes to recite in almost every speech. In the past year, in more than 30 appearances, the president has referred to billionaires paying about 8 percent in federal income taxes. He said it in his last State of the Union address, and odds are he will say it again when he addresses Congress in March.
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Here’s the funny thing: Biden’s 8 percent estimate is derived from that same tax data on the top 400 taxpayers. So what’s going on? The president is describing a tax system that he wishes existed — not the system in place.
As Kessler noted, under the 16th Amendment of the Constitution, ratified in 1913, “Congress shall have power to lay and collect taxes on income, from whatever source derived.”
The operative word is “income,” which is why I highlighted it.
Biden and the Democrats dishonestly use a definition of income, to Kessler’s previous point, that they wish existed, vs. the definition that does exist, per federal tax legislation and the IRS. So, what does taxable income consist of, according to the IRS?
Generally, you must include in gross income everything you receive in payment for personal services. In addition to wages, salaries, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options.
Note that unrealized capital appreciation is not included in the above definition of income. Here’s a simplified example:
Let’s assume that you had taxable income of $100,000 in 2023. In addition, your home increased in value by $20,000, and your (non-IRA or 401(k)) investment portfolio increased in value by $10,000. Also, you didn’t sell any of the portfolio’s investments.
Democrats like Biden and Elizabeth Warren, along with independent (socialist) Bernie Sanders, wish you’d have to pay taxes on $130,000 vs. $100,000. Add a few zeroes to the example and that is, in essence, how Democrats concoct their nonsensical, 8 percent tax rate for billionaires.
Here’s more from Kessler:
In 2021, two White House economists — Greg Leiserson of the Council of Economic Advisers and Danny Yagan of the Office of Management and Budget — published a blog post that estimated what the tax rate would be for the 400 wealthiest households if unrealized capital gains were considered part of income. … The report estimated that these households had an average federal individual income tax rate of 8.2 percent for the 2010-2018 period.
The steep run-up in stock prices in recent years has meant the wealth of super-wealthy Americans has risen significantly, even if they never sell stock that would trigger a tax liability. In fact, when interest rates were low, it was more cost-effective for a billionaire to borrow money against the value of those shares than sell them. The White House economists estimated what the tax rate would be if that income — now not subject to taxation — were included on their tax returns.
As I suggest in the headline, there isn’t a wealthy Democrat in America who doesn’t know that everything in this article is true. Yet, serial-lying multimillionaires like Nancy Pelosi, Elizabeth Warren, Bernie Sanders, and Joe Biden continue to lie through their teeth about it to low-information voters.
Robert Willens, a leading tax and accounting expert, called the 8 percent claim “disingenuous at best.”
It’s disingenuous, at best, to tout an eight percent figure without explaining how it’s calculated, and acknowledging that it is based on an aspirational definition of gross income that isn’t currently in effect.
Further, [Biden] risks even more opprobrium [harsh criticism] being heaped on wealthy taxpayers who are, based on widely cited statistics, paying a very large proportion of the aggregate income taxes the IRS collects each year.
Mr. Willens, with all due respect, that is exactly what Biden and the Democrats want: even more harsh criticism of billionaires by low-information Democrat voters.
The Bottom Line
Remember, as George Carlin said, “Never underestimate the power of stupid people in large groups.” And that very fact, gang, is exactly what the Democrat Party counts on — daily — along with a healthy dose of their politics of division.
