Warren Buffett, the CEO of Berkshire Hathaway, and Jamie Dimon, the CEO of JP Morgan Chase, have conveyed a clear message to Washington, advocating for increased taxes on the wealthy as a means of fairness and addressing the growing federal deficit. Traditionally, Republicans in Congress have opposed tax increases on the wealthy. However, there are reports that the party is considering a “millionaires tax,” illustrating how President Donald Trump’s populist approach has influenced them. This proposal, facing opposition from several Republicans, aims to fund tax breaks for tips, overtime, and Social Security benefits, as well as extend certain provisions of the 2017 Tax Cuts and Jobs Act.
Despite these discussions, raising income taxes on high earners is unlikely to significantly impact billionaires like Buffett, Dimon, Elon Musk, and Jeff Bezos, as these individuals predominantly earn their wealth from investments rather than salaries. Concurrently, reductions in the IRS audit division and leadership changes could potentially facilitate tax avoidance.
The “millionaires’ tax” would likely disproportionately affect professionals such as bakers, doctors, lawyers, athletes, and executives, rather than the ultra-rich, who often utilize legal strategies to minimize their tax liabilities. For instance, Jeff Bezos, the founder of Amazon, did not pay federal income tax between 2007 and 2011 despite his billionaire status, according to a 2021 ProPublica report. Bezos is currently the second-richest person globally, with a net worth of $195 billion, according to the Bloomberg Billionaires Index. Similarly, Tesla’s CEO Elon Musk, who tops the rich list with a $304 billion net worth, avoided federal income tax in 2018. ProPublica’s research also indicated that no one among the country’s 25 wealthiest individuals has consistently paid as little in taxes over the years as Buffett.
Buffett has frequently highlighted tax inequality, pointing out that he pays a lower tax rate than his secretary, Debbie Bosanek. Bosanek’s situation inadvertently spotlighted tax inequality in the U.S., prompting President Barack Obama in 2011 to propose the “Buffett rule.” This rule sought to raise the effective tax rate on millionaires to 30% by reducing specific tax breaks and subsidies, but the bill was ultimately blocked by a Republican filibuster.
Currently, six states—California, Connecticut, Maine, Massachusetts, New Jersey, and New York—and Washington D.C. have implemented “millionaire taxes” focused on income. Federally, a top tax rate of 37% applies to individuals earning at least $626,350, with Congressional Republicans reportedly contemplating raising this to 40% for those making approximately $370,000 more. However, the proposal would not currently impact qualified dividends and long-term capital gains, which face a top rate of 23.8%. The private equity sector benefits from this rate through carried interest, which is a significant component of compensation for venture capital and hedge-fund managers. President Trump has expressed a desire to close this loophole, with the Congressional Budget Office estimating this could reduce the federal deficit by $13 billion through 2034.
Some argue that the ultra-wealthy already face high tax rates. The American Tax Foundation, a conservative-leaning think tank, cites a 2024 Treasury Department study indicating that the country’s wealthiest individuals pay effective tax rates as high as 60% when accounting for various taxes, including corporate income, estate, state, and local taxes. According to Scott Hodge, the Tax Foundation’s President Emeritus, the Treasury study aimed to show that wealthy Americans pay relatively small amounts in income taxes compared to their total wealth, noting that most governments tax income and not wealth.
A straightforward “millionaires’ tax” is unlikely to alter this situation.
This article was originally published on Fortune.com.
