Wealth inequality has been on the rise over the last few decades, and some states have residents sitting on a whole lot of cash.
A new report from the Institute on Taxation and Economic Policy finds that 30% of American wealth is held by households that have over $30 million in their coffers. That 0.25% of all households holds about $39 trillion combined.
The way extreme wealth interacts with the tax code also means that while those Americans at the very top hold the lion’s share of the nation’s wealth, they pay much less in taxes than you might expect. “We have very little in the way of taxation of wealth for the extremely wealthy families — not so much for the middle class,” Carl Davis, ITEP’s research director and one of the report’s authors, told Insider.
ITEP found that some states have disproportionately more high-wealth individuals than others — and that means a lot of money going untaxed in their borders. Report authors Davis, Emma Sifre, and Spandan Marasini used the Survey of Consumer Finances, Forbes data, and IRS data on extremely high-income households to determine which states have the highest concentration of extreme wealth.
New York, for instance, is home to 21.3% of potentially taxable wealth held by households with net worths over $30 million in the US, according to the report. California has the second highest share at 11.9%. Florida is the only other state with a share in the double digits at 10.1%.
Wealth is also overwhelmingly held by white Americans — 86% of the country’s wealth belongs to white families, while Black families hold just 3%. That gets even more concentrated at higher income levels, according to the report.
The results show just how much states could reap if they expanded how their taxes were structured. Much of that wealth held by Americans at the top currently remains untouched by taxes. That’s due, in part, to features of the tax code that make it perfectly legal for some of America’s richest people to pay nothing in income taxes.
It’s a big difference between those at the top and the middle class. “For a typical family, a large share of their wealth is often tied up in their home. That family is already effectively paying a wealth tax in their local property tax bill every year on the home that they own,” Davis said.
But very wealthy families often have most of their assets in things like stocks and business equity. When the value of those types of assets goes up, their owners earn what’s called unrealized capital gains, which go untaxed at the state and federal level. Once they’re sold off, they’re subject to the capital gains tax, which is much lower than the straightforward income tax most Americans pay on their paychecks.
The report notes that directly taxing wealth rather than income for ultra-wealthy Americans could raise enormous sums of money. For instance, households with over $30 million in New York hold nearly $6.7 trillion. If wealth over $30 million there was subject to a 2% wealth tax, it would bring in $88 billion.
According to the report, at the national level, a 2% wealth tax on those with over $30 million could bring in about $415 billion.
Because assets like that are untaxed by the state and federal government, states have to resort to more regressive types of taxes that fall on working- and middle-class residents, according to Davis. A regressive tax means the more money you make, the smaller share of your income you pay in taxes. Those are things like the sometimes-hefty sales tax you pay daily on different goods.
“We’ve seen a big rise in extreme wealth, partly because we tax that wealth so lightly, if at all,” Davis said. “This is a weakness in our current tax code that that needs to be addressed to help put the breaks on this runaway inequality we’re seeing in our economy.”
Editor’s note: The amount of total wealth held by households with over $30 million has been updated.