Vinod Khosla believes future presidential candidates ought to campaign on eliminating income tax for individuals earning under $100,000

If you’re searching for a presidential campaign pledge to base a run on, eliminating income taxes for individuals earning under $100,000 annually is certain to resonate well with voters.

That’s the view of prominent venture capitalist Vinod Khosla, at least. The founder of Sun Microsystems and Khosla Ventures argues that the simplest path to more equitable tax policy change is to involve national-level politics.

“I hope the next presidential campaign gets behind this idea: No one earning under $100,000 annually pays income tax starting in 2030,” Khosla Editor-in-Chief Alyson Shontell on the latest episode of the Titans and Disruptors of Industry podcast. “I believe policy—shaped by politics—will determine the final outcome of this issue.”

Notably, Khosla’s plan to offset the lost revenue would impact the investor himself. A legendary Silicon Valley backer and OpenAI’s first institutional investor, Khosla thinks the most effective way to eliminate taxes for lower earners is to raise them for higher earners—by taxing capital gains using the same brackets as ordinary income. “At its core, we should do away with the concept of capital gains. All income is ordinary income. Everyone pays the same tax rate,” he stated.

Would This Plan Be Feasible?

Here’s why this could be game-changing: Most capital gains are never realized, or are realized through methods that qualify for exemptions or favorable treatment (such as home sale exclusions, tax-advantaged accounts, and stepped-up basis upon death). This means effective tax rates are much lower than statutory rates—if the gains ever reach the government’s coffers at all.

Capital gains are highly concentrated among the top tier of earners: The top 1% (those making at least $650,000 annually) account for roughly 45% of total macro capital gains. This figure rises when considering the top 10% (earning $250,000 or more yearly), who pay more than three-quarters of all capital gains taxes.

A recent study by the IRS and academic researchers found that households accumulated approximately $116 trillion in total capital gains between 1954 and 2021, but less than 20% of that was ever reported as a realized gain on tax returns. The study also revealed that households held roughly $16.2 trillion in total capital gains in 2021—equivalent to about 94% of net national income and exceeding the sum of total wages, dividends, and interest income.

In short, capital gains are the most concentrated type of income in IRS records.

The Washington Center for Equitable Growth—a nonprofit economic policy research group—analyzed additional IRS data and uncovered even more notable findings. For example, real capital gains averaged 20% of national income over the past 20 years, up from 5% before 1980, and reached nearly $6 trillion in 2021, accounting for roughly 39.2% of national income.

Khosla’s push to eliminate federal income tax for low earners is already partially in effect. The Tax Policy Center—a nonpartisan tax policy think tank—projects that 40% of households (about 76 million “tax units”) will not owe federal income tax in 2025. Households earning under $100,000 make up most filers and a significant portion of total labor income.

For the remaining filers earning under $100,000 yearly, the lost revenue is a negligible amount for a nation with a $38.8 trillion (and growing) debt. While the IRS does not report separate income breakdowns for this group, we can estimate that households earning less than $100,000 annually likely pay no more than $1 trillion to $1.4 trillion in federal income tax. (This figure is based on individual income taxes that generate roughly $2.6 trillion per year. It’s crucial to note that this group contributes a large share of payroll taxes, which fund Social Security and Medicare).

What Defines a Fair Income Distribution?

Taxing high-income individuals is not a novel idea—it’s the goal of our existing “progressive” income tax system. Khosla’s proposal stands out because it could reclassify an entirely new category of income that may not have been collected by the government in the first place.

This week, Sen. Bernie Sanders and Rep. Ro Khanna introduced a proposal targeting individuals with a net worth of $1 billion or more—impacting just 938 people in the U.S. A portion of the projected $8.2 trillion in extra annual revenue would be distributed as $3,000 checks to individuals earning under $150,000.

This comes after other recent efforts to tax high earners. A California billionaire tax—one Khosla opposes—would impose a flat 5% tax on those with a net worth of $1 billion or more in the state, which could prompt billionaires to leave the state en masse.

Even though the California tax has been poorly received in tech circles, Khosla strongly advocates for taxing the highest earners and redistributing the funds to lower earners. “This would be tax-neutral: no additional taxes, but a far more equitable income distribution,” he said.

Still, Khosla may have support from some of his wealthy peers, particularly overseas. Nearly 100 billionaires have essentially asked to be taxed more, and thousands of celebrity millionaires have praised their actions. In the U.S. alone, 1,000 Americans become millionaires each day; the country added over 379,000 new millionaires in 2024, and this group held roughly $107 trillion in total wealth by the end of that year.

Khosla estimates that 123 million people would get tax relief if his proposal is implemented—a large voting bloc for any national candidate.

“These are the voters—they’ll support a candidate who pledges no income tax for those earning under $100,000.”