Paycheck earners can lose more than half to taxes while billionaires compound untouched
Work gets clipped every year, while ownership grows untouched inside the asset.
The Prof G Pod with Scott Galloway · Scott Galloway: Stop Demonizing Billionaires and Start Taxing them | Office HoursIn Scott Galloway's view, the people most hurt by the American tax system are what he calls super earners. Galloway is a commentator on business and wealth.
His example is a couple making $1.5 million a year entirely from work. She is a star at a law firm, he owns a chiropractic clinic, and they own nothing that grows on its own. In high-tax states on the coasts, he says, that paycheck income is taxed at 52 or 53 percent.
That happens because earners are taxed every year. Galloway puts the annual cut at 10, 20, or 40 percent, but the point is that it comes out of current income, again and again.
Owners live under different math. A founder or shareholder holds a company, stock, or property, and that holding grows without a yearly tax bill. The rising value is not clipped each year the way a salary is, so the wealth keeps building on itself.
Over time, that difference becomes enormous. The working couple owns nothing that carries over, so each year they live off new pay and keep less than half after the tax. The asset owner begins each year with last year's larger pile, and generally owes no tax on the gain until sale.
That is why Galloway argues that a tax aimed at assets would not reduce anyone's quality of life.
Questions people ask
What does tax deferred mean here?
It means no tax is due while the value grows. If you own stock that rises from $10 million to $20 million, you generally owe no income tax on that $10 million gain until you sell. That lets the full amount keep compounding, unlike wages that are taxed in the year they are earned.
How can a 53% rate be possible when the top federal rate is 37%?
The federal rate is only one layer. In high tax states, earners also pay state income tax, and in New York City they pay city tax, plus Medicare taxes and the loss of deductions at high incomes. Added together, Galloway says, the combined marginal bite can reach 52 or 53 percent.
How do very wealthy people live without selling and paying tax?
A common method is to borrow against their stock instead of selling it. The bank loan supplies cash for spending, and loans are not taxable income. The shares stay in place and continue to rise in value.