Photograph by Nathaniel St. Clair

“If poor people knew how rich rich people are,” Chris Rock once quipped, “there would be riots in the streets.”

So, I wonder, what would average taxpayers do if they knew they’re currently paying income tax at triple the rate our richest megabillionaires are paying?

Few taxpayers understand this reality, largely because of how we’ve been conditioned to contemplate “income” and “income tax.” Every year we follow the same routine. To tally up our income for tax purposes, we take the wages from our paychecks, add in a little of this and that, and end up arriving at what the tax code defines as our “adjusted gross income.” That becomes our reference point for “income” in our daily lives.

But lots of income — in a real-life economic sense — doesn’t land on our tax returns, at least not in the year it’s generated, and often not even ever. Those modest increases in the value of our homes over the course of a year? We don’t generally think of those increases as income, but they do rate as such. And these modest annual increases in home values that average taxpayers see pale against the rising asset values that our richest billionaires see, rising asset values that show up nowhere on their tax returns.

To understand how absurdly undertaxed our megabillionaires have become, we need to start with the income-defining work of two economists active and honored about a century ago, Robert Haig and Henry Simons. Haig and Simons developed a concept for defining a person’s true annual income now referred to as “Haig-Simons income.”

A person’s Haig-Simons income over a year would be that individual’s wealth at the end of the year reduced by the individual’s wealth at the beginning of the year, plus the amount spent on consumption during the year. Put another way, a person’s Haig-Simons annual income would be the amount a person’s wealth would have increased over the course of a year if the person did not reduce that wealth through spending.

Why do we need to bother with Haig-Simons calculations? We have an exceptionally good reason: How we tax the Haig-Simons income of our richest Americans determines our........

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