EXECUTIVE SUMMARY
According to an analysis by American for Tax Fairness of new Federal Reserve data on household income and wealth, America’s billionaires and centi-millionaires (those with at least $100 million of wealth) collectively held at least $8.5 trillion of “unrealized capital gains” in 2022. These profits from unsold investments constitute the largest source of income for the super-rich. This staggering accumulation of “quiet” income may never be taxed unless special taxes on the ultra-wealthy now under consideration in Congress are enacted.
The data show that more than one in every six dollars (18%) of the nation’s unrealized gains is held by these roughly 64,000 ultra-wealthy households, who make up less than 0.05% of the population. That is nearly triple the share that billionaires and centi-millionaires held when the Federal Reserve started tracking unrealized gains in 1989. This tiny handful of the super-rich hold as much unrealized capital gains as the entire bottom 84% of American society (110 million households). Under current law, these gains in the value of stocks, bonds, businesses, real estate and other assets are not taxed unless the gain is “realized” through a sale.
But the ultra-wealthy don’t need to sell to benefit: they can live off low-cost loans secured against their growing fortunes. And once inherited, such gains disappear completely for tax purposes. President Biden and Senate Finance Committee Chairman Ron Wyden (D-OR) have each proposed reforms that would annually tax the unrealized gains of the nation’s wealthiest households. President Biden’s plan has been introduced in the House by Reps. Steve Cohen (D-TN) and Don Beyer (D-VA) with 60 cosponsors and Chairman Wyden’s plan has been introduced in the Senate with 15 cosponsors. Both plans would raise hundreds of billions of dollars in tax revenue exclusively from the nation’s very richest households, revenue that could be used to lower costs and improve services for the rest of America.
The Fed data comes from its Survey of Consumer Finances (SCF). Conducted every three years since 1983, the SCF is a unique study of Americans’ income and wealth, broken down by demographic and other characteristics. For 40 years policymakers and researchers have relied on the SCF for timely and detailed information on the economic status of American households.
The Different Economic World of the Ultra-Wealthy
New data from the Federal Reserve underlines how the economics of the ultra-rich are becoming increasingly disconnected from those of ordinary American workers. While most Americans predominantly live off the income they earn from a job–income that is taxed all year, every year–the very richest households live lavishly off capital gains that may never be taxed.
The Fed data also shows that the super-rich not only have unimaginably more of such earnings than the median American household, but the earnings represent over twice the share of their total wealth and come in a very different form. For billionaires and centi-millionaires, over half (56%) of their wealth is made up of untaxed gains, compared to less than a quarter (24%) for the average American household [Figure 4].
Comparing the distribution of unrealized capital gains of the ultra-rich to those of the bottom 90% of American households reveals wide disparities in how wealth gains are being accumulated. While gains on real estate generally, and especially on primary residences, are distributed somewhat more equitably–though the tiny elite still hold a hugely disproportionate share–the concentration at the top of unrealized gains in financial assets is the most extreme.
We estimate that each member of the centi-millionaire elite holds an average of $132 million in unrealized capital gains. This is almost 3,000 times more than the $47,000 of unrealized capital gains held by the median American household. Equally important, the vast majority of that typical households’ unrealized gains—$33,000, or 70%—are in the appreciated value of the family’s primary residence. Family homes are subject to an annual wealth tax in the form of state and local property taxes that reflects the residences’ increased value.
But for the ultrawealthy, the increase in value of the primary family home represents only a small fraction of their total gains. For them, only a relatively small $600 billion comes from property ownership in general, of which just $128 billion—less than 2% —is unrealized gains from their primary place of residence.
Of the $32.6 trillion in national unrealized capital gains in assets other than personal residences, $8.4 trillion—over 25%—was held just by the tiny handful of centi-millionaires and billionaires [Figure 5]. The largest source by far of unrealized capital gains for the centi-millionaire elite is derived from their ownership of businesses, stocks and mutual funds, accounting for $7.9 trillion (93%) of those untaxed gains.
National Gap in Wealth & Wealth Growth Outpaces That of Income
Of the $139 trillion in America’s national wealth, almost three-quarters (73%) is held by the richest 10% of households, over one-third (35%) by the richest 1%, and an astounding 11%—$15.2 trillion—is held by the handful of fortunate households that make up the billionaire and centi-millionaire class [Figure 1].
The bulk of that wealth is in the form of unrealized—and therefore untaxed—capital gains. This pool of $48 trillion of untaxed gains is even more heavily concentrated among the ultra wealthy. The wealthiest 1% of households hold 44% of national unrealized gains ($21.2 trillion), with billionaires and centi-millionaires alone controlling 18% ($8.5 trillion).
By contrast, national income as traditionally measured—made up of wages, interest, dividends, realized capital gains and other regularly taxed flows of money—is more evenly distributed. While still a lopsided distribution, billionaires and centi-millionaires take in a relatively modest 4% of such traditional income. This difference indicates tax reform intended to narrow the nation’s economic inequality should concentrate on wealth growth—untaxed capital gains—rather than on traditional forms of income.
by WillT_Super_Ninja
3 comments
enough money to provide universal free healthcare, free higher education, solve homelessness and the housing crisis
>held at least $8.5 trillion of “unrealized capital gains” in 2022. These profits from unsold investments constitute the largest source of **income** for the super-rich. This staggering accumulation of “quiet” **income** may never be taxed unless special taxes on the ultra-wealthy now under consideration in Congress are enacted.
If the gain is UNREALIZED, then by the very definition of the word, it cannot be income.
If the value of your house goes from $100K to $500K, but you don’t sell it, you got no income from it. To call that $400K increase in value of the unsold house INCOME is lunacy.
Two things.
The government intentionally spends more money than it collects, causing deficits which cause debt which cause at this point about a trillion dollars a year in interest payments on the debt.
The government has an annual budget wherein they detail the amount of money directed to every spending item. If more revenues are collected, then the deficit is smaller in that year. If the government did not intentionally spend more money than it will collect, there would be a surplus in years with more revenues.
So is the government entitled to those revenues? Is there such a thing as the government winning the lottery as it were and keeping the money they collected above the amount they told us they needed to operate?
If so then the government has an incentive to raise as much revenue as possible because it’s more money they can spend to benefit themselves. We already let them borrow money from us that we know they cannot pay back, and they are notorious for enriching themselves in the process. Why are we even discussing giving them more money instead of requiring them to only spend what they collect?