@jacsamoby, Kathleen Bryant, and I put out a paper today framed by two points: much of the income of very wealthy people does not show up on their tax returns and often enjoys special tax breaks when it does http://bit.ly/2qKpqJ3 

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Because of the wealth tax proposals, these issues are getting lots of attention. The piece I think is getting too little attention is how relatively little personal income tax many wealthy people pay, i.e. the current system is not working. A couple of examples:

First, the man behind the Buffett Rule, which misleadingly only looks at the rate differential between Mr. Buffett and his secretary. The rule ignores most of his income.

The value of Buffett’s main asset rose roughly $7.2 billion in 2010 but his adjusted gross income was just $62.8 million on his 2010 individual return – a tiny fraction of his overall income. Whereas his Secretary’s paychecks are wages and taxes are withheld every two weeks.

Or take Jeff Bezos. Each year, he draws a salary of about $82,000. Should our main tax, the individual income tax, based on ability to pay, see him as a middle-class taxpayer? Yet, if he sells none of his shares that year, most of his income does not show up on his return.

Between 2009 and 2018, Bezos did sell roughly $6.3 billion of shares according to SEC filings for a tax bill of about $1.5 billion. His Amazon holdings, however, grew by more than $100 billion – for an effective tax rate on this income of just 1.5%.

It’s not only that many wealthy people defer their income tax liability each year, whereas middle class people pay tax every two weeks. When wealthy people with massive capital gains die, their income tax liability is simply wiped out. Erased.

It’s easy to get bogged down in eye-glazing complexity (mark-to-market, valuations, liquidity). This needs to be engaged but the current situation needs to be understood simply: much of the income of the wealthiest does not show up on their tax returns each year and it should.