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Yahoo Finance's Rick Newman breaks down the White House Office of Management and Budget report that found the wealthiest 400 households in America pay an average of 8% in federal income tax, which is considerably less than the average American pays.
- Taxing the rich. We know President Biden has been making a big push to do this. Well, the White House is publishing new analysis this week. And in it, it was comparing what everyday Americans pay in taxes every year versus what billionaires pay in taxes. And a little bit different than what we've got in previous reports is the basis of this week's "Bidenomics." We want to bring in Rick Newman for a little bit more on this.
And Rick, this has long been a focus of Democrats are trying to highlight the difference that you and I pay versus what billionaires out there pay. But what we got from this report of some eye popping numbers and some figures, I should say, that we haven't necessarily seen before.
RICK NEWMAN: Right. These two Biden administration economists analyzed tax payments for America's richest 400 taxpayers and found that they only pay 8.2% of their income in taxes. [? Sean, ?] the average the average person pays about 15% of their income in taxes. I think you and I pay more than 8.2% So you would be right if you scratch your head and said, can this really be true? And there are some important caveats here. And this gets to the whole debate about how to raise taxes on wealthy people.
So these economists included all the gains on investments that those 400 taxpayers enjoyed. But they did not sell their investments. And the way our tax system works is you only pay a capital gains tax on investments when you sell those investments, whether it's a stock, whether it's real estate, or whatever it is. You don't pay a tax on it when it goes up in value, but you just hold on to it.
So this appeared to be the Biden White House endorsing a wealth tax, which is something President Biden opposed when he ran for president last year. We did hear some other presidential candidates, like senators Bernie Sanders and Elizabeth Warren, say, we need a wealth tax. So all of a sudden, it sounds as if the Biden and the White House are sort of agreeing to a wealth tax in a subtle way.
And sure enough, when asked about it today, Biden said, yes. It turns out he actually would support this type of tax. However, this is not nothing like this is in the tax plan that just came out of the House Ways and Means committee. It's a very difficult tax to administer. And for a bunch of other reasons, it's very unlikely Congress is ever going to pass a wealth tax. So this suggests to me that the Democrats are really looking around trying to figure out where in the world are they going to get all the tax revenue to pay for that $3.5 trillion spending bill.
- I feel like I should be asking to pass the Grey Poupon, but I'll get right to the question. I could hear the critics of this saying, look, that money may not-- they may not have sold their assets but the capital that was put into place has generated other revenue that is taxed. Is that a valid response to this?
RICK NEWMAN: It is, Adam. And in fact, we have seen some growing evidence lately of very wealthy people who take very low interest loans using their accumulated wealth as a collateral. So these are people who have billions of dollars in assets. And they don't cash in the assets and live off the profits from the assets. They take very low interest loans with those assets as a collateral. It gets very complicated. But that's not the way the system is meant to work.
So there are certainly some abuses in some things that need to be addressed here. However, there are other ways to do it. We don't have time to get into all the details, but you raise the capital gains tax on actual sales of invested assets, and then you impose capital gains when somebody dies. So instead of being able to pass along the assets tax-free, a capital gains will be imposed when somebody dies on an estate. We've had that before. Biden does want to do that again. There is political opposition to this. So that is not going to be easy either.
But these are the types of things that Congress is going to be debating over the next several weeks and months as this negotiation over the tax and spending bill really gets intense.
- And we will continue to cover it as the negotiations do take place. Rick Newman, thanks so much for [? hopping ?] on here with us. And of course, you can catch Rick's article on YahooFinance.com. Rick, have a great weekend.