Could 2025 End Up a Nightmare for Our Tax-Averse Rich?

Photo by The New York Public Library

We haven’t of late had much in the way of political “consensus” here in the United States. But we do today have one consensus of sorts — on our tax system of all things. Most everyone considers how we go about taxing ourselves to be, at best, distinctly suboptimal.

How do we change that? Where do we start? Who’s really hurting under our current tax system? Our tax “consensus” — on fundamental questions like these — breaks down immediately.

Take, for instance, the question of who’s really hurting under our current tax rules. Our contemporary political right sees America’s rich as our tax system’s biggest victims. America’s top 1 percenters, as one conservative analyst recently declared, “actually contribute more than their fair share.”

Most of our rich, with some noble exceptions, share this perspective. Indeed, observes the Henley & Partners consultancy CEO Juerg Steffen, our wealthy’s unhappiness with the U.S. tax system — and their uncertainty about the system’s future — has been generating “an unprecedented surge in affluent Americans seeking alternative residence and citizenship options.”

American progressives, by contrast, see in our current tax system an operation that essentially privileges the already privileged.

The United States, explains an Americans for Tax Reform analysis of new Congressional Budget Office data, is now sitting on its “most lopsided distribution of income” since government statisticians first started tracking that distribution. Most of this surge in inequality, the ATF goes on to note, reflects “the bonanza of capital gains” that our highest-income households have long enjoyed.

Our tax code currently taxes this bonanza of capital gains — the profits the wealthy make when they sell their appreciated stocks, bonds, and other financial assets — at a much lower rate than the highest tax levies on wage and salary income.

But the preferential treatment capital gains receive, progressive analysts stress, goes even deeper. The capital gain windfalls that our richest register don’t just face conveniently low tax rates. These windfalls are regularly facing no taxes at all.

How do our super rich pull that trick off? Chuck Marr and Samantha Jacoby from the Center on Budget and Policy Priorities walk us through the magic in a rundown they released earlier this month. The wealthiest among us, they detail, don’t sell their appreciated assets. They borrow against them.

This borrowing lets the rich maintain their luxurious lifestyles and avoid having to pay the — modest — tax they would have to pay if they went and sold their assets that have soared in value. Their assets, meanwhile, continue to increase in value, and that increase will typically far exceed whatever costs the borrowing against these assets might have engendered.

What happens when these rich pass on to the great beyond? Their capital gains remain untaxed. The particular magic here goes by the label of “stepped-up basis.” The heirs to the wealth our dear-departed wealthiest leave behind face no tax on the billions in unrealized capital gains their rich benefactors had accumulated over the years. The reason: Our tax code values inherited assets at their fair market value at the moment of inheritance. Any capital gains over the assets’ original cost simply — for tax purposes — disappear.

How’s that for magic!

This bag of tax tricks doesn’t work at all for the one major appreciating asset that average Americans hold: our homes. We pay every year property taxes on the homes we own. If the value of our homes rises, we pay more in taxes. And if we go on to sell our homes, we pay a tax on any gain we realize.

The privileges our richest enjoy at tax time extend neatly to the generous annual compensation that our top corporate executives pocket. Major corporate CEOs, the Economic Policy Institute has just reported, last year realized $22.1 million in compensation, 290 times the pay that went to typical U.S. workers.

Over three-quarters of this CEO compensation came in stock-related pay, as either options to buy stock at a future date at a below-market price or as awards of stock that come free after a “vesting” period. Both options and vested stock awards arrive awash with nifty tax workarounds that can have top execs paying taxes on their lush compensation at lower tax rates than their workers.

The good news amid all this tax dodging by our richest? In 2025, we have a real shot at taking the rich people-friendly magic out of our current federal tax code.

What makes 2025 so special? By the year’s end, most of the tax giveaways to the rich that Donald Trump signed into law in 2017 will expire. That reality will have rich people-friendly lawmakers entering next year absolutely desperate to renew those giveaways before that expiration takes place.

If Donald Trump wins election this November and arrives back in office with congressional majorities willing to follow his lead, our richest will gain that renewal. In 2026, the Institute on Taxation and Economic Policy calculates, that renewal would save our richest 1 percent — taxpayers with incomes over $914,900 — 46 times more than average taxpayers making between $55,100 and $94,100.

If Election Day this November produces a different outcome, on the other hand, the lobbyist armies of our richest could be facing the sorts of legislative defeats America’s rich haven’t seen since Franklin Roosevelt sat in the White House — but only if those of us who seek a more equal America get our act together and organize to create a tax code that coddles our many, not our richest few.

The just-announced Fair Share America coalition is aiming to lead that organizing effort, and some 300 state and national organizations have already signed on. These groups range from top research centers and America’s largest union, the National Education Association, to tax justice advocacy groups in states ranging from New Jersey and Pennsylvania to Michigan and Montana.

By January, Fair Share America is aiming to run at least a thousand organizations strong.

The activist who’ll be leading the Fair Share America, Kristen Crowell, brings an encouraging record of organizing success. In 2022, she led the Massachusetts grassroots effort that won a 4 percent surtax on taxable income over $1 million. That surtax, here in 2024, has already generated over a billion dollars in new revenue for public education and transportation.

Let the battle begin!