The US Tax Code Converts Investment Gains Into Political Power

The top 0.00001 percent of the population holds in excess of $3 trillion. This concentration of wealth allows 300 billionaires and their families to spend more than $3 billion on federal elections in 2024, while federal campaign spending by the 100 richest Americans has increased 50-fold over the last decade. The richest 19 billionaires now hold 12 percent of the nation's total income.

This accumulation is driven by a tax system that defines income as realized gains rather than Haig-Simons income, which includes the increase in pre-tax wealth from unsold assets. Because the IRS does not tax unrealized gains, wealthy investors can borrow against unsold shares at low interest rates to avoid income tax entirely. Even when assets are sold, investment gains are taxed at a maximum capital gains rate of 23.8 percent, which is significantly lower than the top wage tax rate of roughly 41 percent.

Furthermore, the faster an investment grows, the lower the effective annual tax rate when the shares are eventually sold. This mechanism allows the top 0.00001 percent household to hold 200,000 times the wealth of the average household.