Vinod Khosla thinks future presidential candidates should run on removing income tax for those making less than $100,000

If you’re looking for a presidential campaign promise to run on, removing income taxes for people making less than $100,000 a year is sure to be popular at the voting booth.

At least that’s what renowned venture capitalist Vinod Khosla thinks. The man behind Sun Microsystems and Khosla Ventures believes the easiest way to change tax policy more equitably is to bring politics into it—at the national level.

“The next presidential campaign, I hope, gets behind: Nobody pays income tax below $100,000 a year starting 2030,” Khosla told Fortune Editor-in-Chief Alyson Shontell on the most recent episode of the Titans and Disruptors of Industry podcast. “I think policy, which will be driven by politics, will drive where we end up on this equation.”

It’s interesting to note that Khosla’s solution to make up for that lost revenue would affect the founder himself. Khosla, a famed Silicon Valley investor who was OpenAI’s first institutional backer, believes the best way to remove taxes at the lower end of the spectrum is to increase it at the other end—by taxing capital gains at the same tax brackets that apply to ordinary income. “Fundamentally, we ought to eliminate the notion of capital gains. All income is ordinary income. Everybody pays the same tax,” he said. 

Could this work? 

Here’s why this could be revolutionary: Most gains are never realized, or, are realized in ways that qualify for exemptions or preferential treatment (including home sale exclusions, tax-advantaged accounts, and stepped‑up basis at death), meaning the effective tax rates are far below statutory rates, if they ever make it to the government at all. 

Capital gains are extremely concentrated at the very top of the income distribution, with the top 1% of earners (those who earn at least $650,000 a year) accounting for about 45% of macro capital gains. That number expands when looking at the top 10% of earners (those with an annual income of $250,000 or more), who pay over three-fourths of all capital gains taxes. 

A recent IRS- and academic-based study found households accrued about $116 trillion in total capital gains from 1954 to 2021, but less than a fifth of that was ever reported on tax returns as a realized gain. The study also found that households had around $16.2 trillion in total capital gains in 2021, which equates to about 94% of net national income and exceeds total wages, dividends, and interest income.

In essence, capital gains are the most concentrated form of income in IRS data.

The nonprofit economic policy research organization Washington Center for Equitable Growth combed through additional IRS data and found even more striking results. For instance, real capital gains averaged a fifth of national income in the last 20 years, compared to 5% before 1980, and totaled almost $6 trillion in 2021, or about 39.2% of the national income. 

Khosla’s call to remove federal income tax for low earners is already somewhat in play. The Tax Policy Center, a nonpartisan tax-policy think tank, estimates 40% of households, or roughly 76 million “tax units,” will not pay federal income tax for 2025. Households earning below $100,000 account for the majority of filers and a large share of total labor income.

For the rest of filers making below $100,000 annually, the lost revenue is a mere drop in the bucket for a country currently $38.8 trillion in debt, and counting. Although IRS income breakdowns are not separately reported, we can estimate that households earning less than $100,000 a year likely pay at most $1 trillion to $1.4 trillion in federal income tax. (This number was derived on the basis of individual income taxes that raise on the order of $2.6 trillion a year. It’s important to note this group pays a large share of payroll taxes that go to funding Social Security and Medicare). 

What makes a fair distribution of income?

Taxing individuals at the higher end of the income spectrum is not a new concept; it’s what our “progressive” income tax system tries to do already. Khosla’s idea differs in that it may soon reclassify an entirely new category of income that may not even have gone into the government’s coffers to begin with.

This week, Sen. Bernie Sanders and Rep. Ro Khanna proposed a 5% annual wealth tax on individuals with a net worth of $1 billion or more—affecting only 938 individuals in the United States. A portion of the estimated $8.2 trillion in additional annual revenue would be appropriated as $3,000 checks to individuals earning below $150,000. 

This follows other recent moves to tax high earners. A California billionaire tax—which Khosla does not support—would place an equal 5% tax on those with net worths of $1 billion or more in the state, which could incentivize billionaires to flee the state in droves. 

Despite the generally poor reception to the California tax in tech circles, Khosla is a major proponent of levying a tax on the highest earners and redistributing it to the lowest. “It makes it tax neutral: no more taxes, but a much fairer distribution of income.”

However, Khosla might have some company among his high-net-worth friends, especially those abroad. Almost 400 billionaires across 24 countries have all but pleaded to be taxed more, and they were joined by thousands of celebrity millionaires lauding their moves. In the United States alone, 1,000 Americans become newly minted millionaires each day, with the country claiming over 379,000 new millionaires in 2024 and with the group holding about $107 trillion in total wealth by the end of that year. 

Khosla estimated that 123 million people will see tax relief if his proposal comes to fruition—a substantial voting bloc for any candidate on the national stage. 

“They’re the voters, they will vote for a candidate who says no taxes if you make less than $100,000.”

This story was originally featured on Fortune.com