Scott Tibbs

Income and wealth are not the same

By Scott Tibbs, October 19, 2021

We hear claims by some politicians that "billionaires" pay a very small tax rate. We need to closely examine these claims, because to get that tax rate they are calculating an increase in total wealth, not calculating how much they pay on their actual annual income. Income and wealth are not the same and should not be treated the same in the tax code by our policy-makers.

Taxing wealth is very different from taxing income. For example, if Bubba buys a house at $100,000 and after an amount of time has passed the value of that house increases to $120,000, Bubba has more wealth than before. However, that is not liquid wealth. If Bubba sells his house, the cost of the sale can be taxed. But Bubba sees no real income increase from his house appreciating in value, unless he sells his house - and even then that is a one-time increase.

The same applies to the value of stocks. If a billionaire has $500 million invested in stocks, and the value goes to $600 million after two years, he has not earned $100 million in income because that is not liquid wealth. If that billionaire sells his stock and makes the profit, then he has earned $100 million in income. Of course, that is assuming that he actually does realize the entire $100 million in gains, which may not happen. If he starts selling his stock, the price of that stock could very well go down.

The fact of the matter is that the rich contribute an enormous percentage of our income tax revenue, and their tax rates are much higher. Yes, income tax shelters exist, but the idea that billionaires get away with paying nothing is a myth that is spread to stoke envy and class warfare. Do not believe it.

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