Richest North Carolinians already pay so little in taxes; Senate budget would make it even worse

ProPublica’s analysis of recently-revealed tax documents from the ultra-rich reveals that they pay almost nothing in taxes – completely legally – because the U.S. tax code primarily targets reported income rather than total wealth. Because the vast majority of the top earners’ fortunes are stored in stocks and other assets, their income tax ends up being tiny fraction of what they’re worth.  

The average worker does not have this luxury.  

Unfortunately, rather than rebalance the tax system in the average citizen’s favor, the North Carolina Senate’s proposed budget would make inequality worse. Senate Bill 105 would eliminate the corporate income tax (CIT) and lower the already flattened personal income tax (PIT), which is exactly the opposite of what needs to be done.  

This inequality is not the result of an oft-exploited loophole – it is built directly into the tax code. From the beginning, rich interests lobbied hard to keep their wealth from being taxed in the same way as earned income, allowing them to shift much of the tax burden onto everyday workers. 

Today, the U.S.’s definition of earned income only includes the value of stocks, property, and other assets if the owner decides to sell and collect a paycheck for them. If not, those assets are ignored. In the United States, the vast majority of wealth owned by the top 1 percent is in the form of these so-called unrealized gains, with only a small percentage of their net worth in the form of a reportable income. CEOs like Jeff Bezos, for example, have yearly wages set as low as $80,000, yet are worth billions of dollars.  

The majority of Americans, however, do not hold treasure troves of untaxed wealth in the same way. Many people live paycheck to paycheck, their wages going straight to paying for necessities, not to buying up real estate. Additionally, most Americans do not own extensive stock portfolios that exist to buoy their personal wealth while shrinking their tax burden. In fact, the bottom 50 percent of the wealth index own less than 1 percent of all corporate equity and mutual fund shares in the United States. 

Now some leaders in the General Assembly want to let billionaires amass even more wealth.   Read more

Stock wealth boomed during pandemic for wealthiest 1%

For people who derive most of their wealth from stock equity, it has been a very good financial year. In turn, massive stock market gains in the middle of a global pandemic have widened inequality along both wealth and racial lines.

Although the effects of the COVID-19 pandemic on job loss and wage fluctuation have been felt personally by many North Carolinians, the pandemic’s effect on company stock ownership may be less obvious to the average resident. This is largely because those in the top 1 percent of the wealth index own more than half of all corporate equity and mutual fund shares in the United States, whereas the bottom 50 percent own less than 1 percent. Despite this, changes in share value during 2020 have had a significant impact on economic inequality.

Stock and mutual fund wealth fell off by roughly 23 percent during the first quarter of 2020 when the stock market was first feeling the effects of COVID-19. However, by the end of 2020, equity ownership had not only returned to pre-pandemic levels, it had also surpassed them by over 17 percent. In the last fiscal quarter before the pandemic (Q4:2019), the top 1 percent held $15.10 trillion in stock and mutual funds, which had ballooned to nearly $17.8 trillion by the end of 2020. Last year, the richest 1 percent in the U.S. acquired $2.7 trillion in stock and mutual fund wealth while the poorest half of Americans saw less than $0.03 trillion in this kind of equity wealth growth. A typical household in the top 1 percent amassed around 4,500 times more new wealth in stock and mutual fund growth during 2020 than the average household in the bottom 50 percent.

Barriers to access to stock ownership mean COVID-19 also widened the racial disparity in equity wealth. Black people own only 1 percent of corporate equity and mutual fund shares, while an overwhelming 89 percent of shares are owned by white people. As a result, the growth of the stock market over the last year has exacerbated the pre-existing economic inequality between Black and white workers, further concentrating wealth in a small number of rich bank accounts.

Emma Cohn is an intern at the N.C. Budget & Tax Center.