If you live in California, you will have been inundated with a barrage of ads over several propositions that are on the ballot in the upcoming elections. The main ones are Propositions 40, 41, and 42 and all relate directly or indirectly to a proposed wealth tax on billionaires. While Proposition 40 deals directly with this tax, the other two have been thrown in in an effort to confuse voters and stymie implementation of 40 even if it passes.
To understand the need for a wealth tax, we have to understand that while most people pay taxes on income, the very wealthy pay almost no tax. How do they do it? Because they do not receive any taxable income. For example, Google founders Larry Page and Sergey Brin receive salaries of just one dollar per year. They receive their massive compensation in the form of stock that become taxable only when they sell any of it, and even then they pay only the capital gains rate which is a maximum of 20%, much lower than the top income tax bracket of 37%. But they do not pay even that. What they do is keep their stock intact without selling and take out loans with the stock as collateral. Since these are loans, they are not taxed at all. So these people have access to huge amounts of money to spend lavishly without incurring any tax liability.
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