AP Photo/Evan Vucci, File
- An opinion in the Wall Street Journal states that Biden's plan to raise taxes on the rich will adversely affect investing.
- But wealthy people are going to invest no matter how high their taxes are.
- It's time to finally raise taxes on the rich, and use the money to make the country stronger.
- Morris Pearl is the Chair of the Patriotic Millionaires.
- This is an opinion column. The thoughts expressed are those of the author.
- See more stories on Insider's business page.
The campaign against President Biden's proposed tax hikes on the wealthy is in full swing, and much like the campaign in favor of President Trump's tax cuts for the wealthy in 2017, so far it's based more on misinformation than fact.
A recent editorial from the Wall Street Journal Editorial Board bashing a capital gains tax hike as "The Dumbest Tax Increase" is a prime example. The editorial lays out a series of arguments against raising taxes on millionaire investors that, as a millionaire investor myself, come across as glaringly misleading and factually incorrect.
The centerpiece of the argument against increasing capital gains tax rates is that doing so will change how wealthy people invest. But as venture capitalist Alan Patricof recently stated, wealthy people are going to continue to invest no matter what the capital gains tax rate is. The only other alternative is to either spend their money or keep it in a shoe box under their bed.
I'm rich. Tax me.
In an economy with a glut of investment capital and a shortage of consumer demand, it wouldn't be such a bad thing to have rich people spending more. If the explosion of stock prices, real estate prices, SPACS, cryptocurrency, NFTs, and other speculative investments indicates anything, it's that rich people may just have too much money and not enough ways to invest it productively.
Research shows the majority of stocks in the US are held in accounts that are exempt from the capital gains tax. Over the last 50 years, the percentage of publicly traded US stocks held in taxable accounts has gone from over 80% to under 25%. So even if we accept the erroneous argument that capital gains taxes will alter investor behavior, 25% still likely wouldn't be enough for those changes to have a significant impact on the economy. The fact that the WSJ Editorial Board chose to include a John F. Kennedy quote from 1963 about the effects of capital gains while ignoring key changes that have taken place in our economy since then, like the number of stocks in taxable accounts, is emblematic of the ways opponents of Biden's tax plan cherry pick and de-contextualize facts.
It's true that inflation and the inability to fully deduct losses on investments will leave some wealthy investors paying more than they might otherwise, and that taxing capital gains in addition to levying corporate taxes could be interpreted as "double taxation," which further limits the earnings of rich stock owners. But that's kind of the point.
The Biden tax proposal is designed to make wealthy investors pay higher taxes - it's not a sign that the proposal is bad if it's making investors who earn over a million dollars a year pay higher taxes because that's what it is intended to do. This is a feature of the Biden tax plan, not a bug, no matter how much those millionaire and billionaire investors may complain about it. Everyone who is making that much money can afford to pay higher taxes, and our country needs them to.
It is absurd that wealthy investors like myself pay lower tax rates than Americans who actually work for a living. Any change that will bring more fairness to the tax code and shrink the out-of-control inequality threatening our society is worth doing on that basis alone, regardless of all the good for which the potential new revenue can be used.
American billionaires saw their wealth grow by $1.3 trillion during the global pandemic, while working class families, women, and communities of color all disproportionately felt the enormous financial fallout. This gross wealth inequality, including the transfer of wealth from the middle class to the ultra wealthy, has existed in our country for decades, but it's reached unsustainable levels in recent years. A tax plan that starts to reverse this trend isn't "dumb," it's sorely needed.
The current state of our tax code is failing everyone - including the salaried employees of the Wall Street Journal and the staff members of Republican members of Congress opposing Biden's tax plan - except those at the top. The status quo is broken, and Biden's plan to raise taxes on capital gains is exactly the change this country needs. It's time we embrace something new and tax the rich.