The Post’s Self-Serving Take on Taxes

An editorial in the billionaire-owned paper derides fairer taxes on the rich

A year ago the Washington Post’s billionaire owner, Amazon founder Jeff Bezos, announced the newspaper’s editorial page would be reoriented to endorse “personal liberties and free markets.” Few would argue with either principle in the abstract. But they are libertarian code phrases that when uttered by a plutocrat like Bezos basically mean he should have the liberty to get as rich as he likes without the annoyance of government rules or taxes that protect the well-being of everyone who isn’t a billionaire.

The Post’s new stance was on full display this month with an editorial titled “Little to gain by raising taxes on the rich”. It essentially defends a half- century-old system of low taxes on the wealthy that has led to historic levels of economic stagnation for low- and middle-income workers by arguing, in a vacuum, that higher taxes on the rich are bad for the economy.

But such an analysis overlooks all the benefits to the economy of tax revenue properly invested. When the government uses revenue raised from rich people to fund public projects, programs and services that assist workers and families, the benefits are broad and deep.

Between 1945-80, the highest-income Americans—those with annual incomes over $1 million—were paying an effective tax rate twice what similarly situated taxpayers pay today (40-60% then vs. 20-25% now). Most of that 35-year stretch after World War II was a time of rapid economic growth, rising middle-class incomes, and shared prosperity. This was driven in large part by the Federal government’s ability to invest the revenue it generated from wealthy taxpayers into services that built and supported a growing middle class.

In contrast, tax cuts for the wealthy in the Reagan, Bush and Trump eras lowered the top rate. The result has been an extended period of stalled middle-class incomes and increasing economic inequality.

Also important to note: an editorial ostensibly about “raising taxes on the rich” focuses exclusively on the top tax rate on so-called “ordinary income,” which for most people means wages. It thus ignores the biggest sources of income for the rich that are taxed under an entirely different system–and sometimes not taxed at all.

The superwealthy derive the bulk of their income from investments, primarily capital gains and dividends. This type of income for the very rich is taxed at little over half the top tax rate on ordinary income: 20% vs. 37%. (The total tax due in both cases is increased by payroll taxes and an equivalent tax on investment income.) That means an emergency room nurse saving lives and a utility worker restoring power in the midst of a storm can pay a higher tax rate than an investor whose only job is keeping tabs on the stock market.

But the special treatment doesn’t end there. Capital gains are the increase in value of an investment over the purchase price. Under current law, those gains are not taxed until the underlying asset is sold. The superwealthy hold trillions of dollars of such gains and at that level they don’t need to sell to benefit. They can borrow at favorable rates against their rising fortunes and live off those loans, tax-free.

And there’s more. When those gains are inherited by the next generation, they simply disappear for tax purposes thanks to a loophole called “stepped-up basis.” A hundred shares of stock that if sold by the original owner would trigger a 20% capital gains tax can be sold at the same price by an inheritor tax-free.

Closing these loopholes in the taxation of wealth income, and then pouring the billions of dollars raised into public goods like paid leave, universal child care, restored infrastructure, expanded healthcare, and other investments would grow the economy and make life more affordable for workers and families. So it’s clear that contrary to the Post’s editorial serving the economic interests of the paper’s owner, there is a lot to gain from taxing the rich.