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Owners compound, earners get taxed
The people hit hardest by the tax system are what could be called super earners. Picture a lawyer and a chiropractic clinic owner who make $1.5 million combined, own nothing of note, and earn everything through current income. In New York, New Jersey, or California, that income is taxed at 52 or 53 percentage points.
The very rich avoid that, because the asset they own grows without being taxed along the way. The top 1 percent pay 48 percent of taxes in New York, yet they find ways around real wealth being taxed.
A tax aimed at the asset itself targets that gap. One example is a levy on pieds-a-terre, the second homes in Manhattan worth more than $5 million, held by people wealthy enough to own them. By any metric, the top 1 percent have outperformed every other part of the lower 99 over the last 30 years, as wealth moved from labor and consumers to shareholders. Past a certain point, more money also buys no extra happiness, which makes a very progressive structure the least painful place to raise taxes.
Why isn't a rising stock taxed every year?
US tax law taxes most investment gains only when an asset is sold, which is called realization. Until then the gain is unrealized and the whole balance keeps compounding. Assets passed to heirs at death generally receive a stepped-up basis, which resets their value for tax purposes to the value on the date of death.
How does borrowing against stock work?
A securities-backed loan lets an owner pledge shares as collateral and receive cash from a bank. Because a loan is not income, receiving the cash does not trigger a tax bill. Lenders typically cap the loan at a fraction of the portfolio's value and can demand repayment if the shares fall sharply.
Where did the idea that money stops buying happiness come from?
A 2010 study by Daniel Kahneman and Angus Deaton at Princeton analyzed Gallup survey responses from about 450,000 Americans. It found that day-to-day emotional well-being stopped rising near $75,000 in annual household income. Evaluations of life overall, by contrast, kept climbing with income in that study.
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