FORTUNE: COMMENTARY | TAXES
BY STEVE WAMHOFF
It is no surprise that billionaires pay little in federal taxes relative to their incomes, but the level of detail provided by ProPublica Tuesday about how 25 billionaires pulled this off is astonishing. It is also an argument for one of President Joe Biden’s key tax proposals—taxing so-called unrealized capital gains that millionaires and billionaires have long avoided paying taxes on when they die.
The exposé presents the income these billionaires report to the IRS as well as their asset appreciation, which is called unrealized capital gains. Most economists consider unrealized capital gains to also be a type of income, even though it is not taxed under our current laws.
For example, if someone’s net worth was $4 million last year and is $5 million this year, an economist would say that person must have had income of at least $1 million. But if that person’s net worth grew only because their assets appreciated, tax rules do not count that $1 million as income.