Opinion: Americans are fed up with billionaires. Washington needs to get the wealthy to pay up

Editor’s Note: Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies. Rebekah Entralgo is managing editor of Inequality.org, a website published by IPS. The opinions expressed in this commentary are their own.

Imagine if America’s ultra-wealthy invested the financial gains they made during the pandemic in affordable housing, child care centers or any of our country’s other urgent human needs.

As of May, US billionaires had seen their wealth rise by more than $1.7 trillion — an increase of almost 60% since the beginning of the Covid-19 crisis, according to the Institute for Policy Studies and Americans for Tax Fairness. They could easily marshal their vast resources to make people’s lives better — or at least blunt the pain many are still feeling from the height of the pandemic.

Instead, how have we seen billionaires spending their fortunes? Space races. Jeff Bezos’s reported yacht that’s too big to get out of the port. Elon Musk’s impulsive $44 billion Twitter takeover bid that he’s now trying to abandon. Efforts to buy elections. It’s hardly any wonder that people across the political spectrum are fed up with the billionaire class.

But it’s taken much longer for Washington to get the message. It’s time for lawmakers and the administration to double down on addressing America’s wealth inequality before the next crisis hits.

As US workers quit their jobs at record rates, we’re seeing Americans growing more frustrated with an economy where low-wage workers make just a tiny fraction of the mega-millions flowing to their bosses. A recent Institute for Policy Studies report found that the average CEO-worker pay gap at the 300 US corporations with the lowest median worker pay hit 670-to-1 in 2021. (That was up from an already staggering 604-to-1 in 2020.)

Unionization campaigns are also surging, with election filings increasing 56% over the past nine months. It’s no coincidence that the two highest-profile unionization campaigns in the country are targeting companies — Starbucks and Amazon — with billionaire founders and CEOs.

The Inflation Reduction Act the Senate passed over the weekend would be a great start for generating significant revenue from those who should really be paying more. The biggest revenue-raiser is a 15% minimum tax on corporations with profits of $1 billion or more, which is expected to generate $258 billion over 10 years. This addresses the problem of the rampant tax dodging among large companies that has mostly benefited wealthy shareholders and executives.

The bill also includes a 1% excise tax on companies’ stock buybacks, raising an estimated additional $74 billion. This will discourage corporations from siphoning resources into share repurchases that largely benefit shareholders and executives with stock-based pay. Those resources could instead go toward worker wages or other productive investments.

And finally, the bill would boost IRS enforcement to ensure the ultra-rich pay what they owe instead of getting away with hiding their wealth through complex accounting tricks.

If the bill passes the House, revenue from these tax reforms would be used to reduce the deficit and pay for climate programs, as well as capping out-of-pocket costs at $2,000 for those enrolled in Medicare drug plans and extending expiring enhanced subsidies for Affordable Care Act coverage.

The legislation is far from perfect, though. Manchin and Schumer had initially agreed to substantially narrow one of the most obscene examples of how the rich have rigged our tax code: the “carried interest loophole.” Wealthy private equity and hedge fund managers have often paid lower tax rates than many firefighters and teachers because this loophole allows them to claim the bulk of their income as capital gains, which are taxed at a significantly lower rate than ordinary income.

Under pressure from Senator Kyrsten Sinema, that gaping loophole will remain unchanged. Other effective proposals for tackling inequality, such as taxing the accumulated wealth of the ultra-rich, are also missing from the bill.

Gabrielle Smychynsky, left, a first-time home buyer, and her fiancé Wes White, right, take their dog Lucy and their seven-week-old puppy Ada for a walk in their neighborhood in Myrtle Beach, South Carolina on July 13, 2022.

Related article Opinion: The housing market is slowing down, but homes aren't getting cheaper anytime soon

Of course, low tax rates aren’t the only tool billionaires have used to concentrate their wealth and power. Lawmakers should also commit to reforming our nation’s charitable giving system, which the ultra-wealthy have turned into a taxpayer-subsidized platform of private power.

A new Institute for Policy Studies report documents that in 2020, wealthy Americans poured $48 billion into “donor-advised funds,” accounts that offer donors an immediate income tax deduction but have no legal requirement to pay out funds to charities — ever. The funds can exist in perpetuity and be passed on to heirs, delaying the civic benefit indefinitely.

President Biden could also do more on his own to act against wealth inequality. For instance, he could go further to lift the student debt burden that is a driving factor in our nation’s wealth divide, particularly for families of color.

And he could build on his executive order requiring federal contractors to pay a minimum of $15 per hour by also prohibiting the CEOs of these firms from busting unions, manipulating stock prices through share buybacks, or paying themselves hundreds or even thousands of times more than their median-wage employees.

If we want to be stronger in the face of future crises, we need to tackle the wealth inequality that is distorting our democracy and leaving so many Americans behind.