Yes, tax breaks benefit the billionaire class, which has the lowest effective tax rate in the country. And yes, they benefit large corporations, many of which pay no federal income tax. The outrageous tax shenanigans of the ultrawealthy have deservedly drawn the ire of the American public, further aggravated by congressional inertia on the matter.
But we should recognize that tax breaks also prop up the wealth of millions of affluent Americans who take advantage of exemptions that are very hard, perhaps impossibly hard, to defend on either practical or moral grounds.
Last year, tax breaks for dividends and capital gains — profits from the sale of assets, like stocks or artwork, which are taxed at lower rates than other sources of income — cost the government an estimated $153 billion. In 2022, 92 percent of that benefit went to households making $200,000 or more, and 73 percent went to those with incomes over $1 million.
Inheritance explains more than 60 percent of wealth inequality nationwide, a recent study found, but U.S. law allows wealth to be passed onto heirs almost tax-free. Let’s say you buy $1,000 of stock that grows in value to $49,999 over the course of your lifetime; then you pass it on to your children when you die. If your kids turn around and sell the stock the next day, when it is valued at $50,000, they will owe taxes only on the $1 of growth that happened when the stock was in their possession.
All told, roughly half of all major income tax expenditures — provisions that exclude or reduce income for tax purposes, resulting in significant lost revenue for the government — flow to households in the top 20 percent of the income distribution. Annually, that amounts to $500 billion transferred to America’s richest families, money that could have been used to build more affordable housing, deepen investments in public education, cut child poverty, help close the Black-white wealth gap or even make sure all of us had access to a dentist.