This Is A Big Problem: $8.5 Trillion in Untaxed Income for the Super Wealthy

We knew exempting that income from taxation—the largest source of income for the wealthiest people in the nation—was a problem. Now thanks to fresh data, we know just how big the problem is.

We’ve been pushing for a while now the need to tax the unrealized capital gains of billionaires and other members of the super-rich class. We knew exempting that income from taxation—the largest source of income for the wealthiest people in the nation—was a problem. Now thanks to fresh data from the Federal Reserve Board, we know just how big the problem is. 

As detailed in our new report, the roughly 64,000 charmed Americans worth at least $100 million are collectively sitting on a staggering $8.5 trillion of unrealized capital gains. That’s income in a form that will never be taxed: under current law, such gains are only taxed when they are “realized” through a sale of the asset that’s gone up in value (and even then, it’s taxed at a discount). 

There are bills in Congress right now that would annually tax all capital gains—both realized and unrealized—of the nation’s richest people: one in the House introduced by Reps. Steve Cohen (D-TN) and Don Beyers (D-VA) that was proposed by President Biden; and another similar one in the Senate proposed by the chairman of the tax-writing Finance Committee, Ron Wyden (D-OR). The latest data makes it clear that kind of reform couldn’t come too soon. 

The first important thing the new data in our report reveals is how concentrated this kind of untaxed income is at the very top of the economic ladder. The tiny fraternity (they’re mostly all men) of billionaires and so-called “centi-millionaires” have received more than one in every six dollars of all the unrealized capital gains in the whole country. 

The next vital insight is how different the sources of such gains are for the super-rich compared to ordinary people. For average folks, the great bulk—70%—of unrealized capital gains is in the family home. And that increased value is taxed each year in state and local property taxes. 

For the uber-wealthy, their primary residence is the source of just a sliver (less than 2%) of their unrealized gains. Their gains almost all come from businesses, stocks and other financial assets. Those are gains that can go a lifetime untaxed—and then once inherited by the next lucky generation, disappear completely for tax purposes. 

It’s little wonder that billionaires often pay such low tax rates despite their eye-popping net worth. In 2022, ProPublica published leaked income-tax data on the richest Americans. Using that information, ATF determined that over a recent six-year period 26 top billionaires paid a federal income-tax rate of just 4.8% when all their income—including unrealized capital gains—was included, far less than the average American family.

“But wait a minute,” you may well protest. “How do unrealized gains buy the groceries or pay the mortgage? Don’t they have to be translated into taxable gains through a sale in order to generate the necessary cash?”

For regular people, yes. But not for the super-rich. They can raise the funds they need for a luxurious lifestyle through low-cost loans secured against their mounting fortunes. The interest they pay on the loans is just a small fraction of what they’d otherwise pay in taxes. 

It’s a simple proposition, really. We should not exempt from income tax the single biggest source of income for the richest people in the country. And now that we know how much is going untaxed, maybe Congress will address the problem with greater urgency.