He explained Biden’s “wealth tax” on billionaire assets, not income
To help pay for his large economic and social agenda, President Joe Biden is looking to go where the big money is: billionaires.
Biden never supported a “wealth tax” when he ran for the White House last year. But the more traditional rate increase he proposed on the incomes of large corporations and richer Americans ran into a snag.
That leaves a special tax on assets – rather than income – for billionaires that a Democratic senator has proposed as a possible way to help pay for childcare, universal kindergarten, child tax credits, family leave and environmental initiatives.
Biden vowed that his programs would not add a penny to the deficit, which would mean selling Congress and voters a tax on the richest 5,000 percent of Americans.
Some details about the proposed billionaire tax:
how will you work
Basically, billionaires earn the bulk of their money from their fortunes. This may be from the stock market. It can include, once sold, a beachfront mansion or the property of rare works of art and antiques. Even a triceratops skeleton.
This new tax will only apply to people who have had at least $1 billion in assets or $100 million in income for three consecutive years. Those criteria mean that only 700 taxpayers will face an additional tax on increases in their wealth, according to a description obtained by The Associated Press of the proposal by Senate Finance Committee Chairman Senator Ron Wyden, an OR Democrat.
On tradable items like stocks, billionaires will still pay tax even if they keep the asset. They will be taxed on any increase in value and deduct losses. Under current law, those assets are only taxed when they are sold.
Billionaires will also face an additional tax on non-tradable assets such as real estate and business interests once those assets are sold. During the first year of the proposed tax, billionaires will also owe taxes on any internal earnings that precede the tax.
How much will you rise?
House Speaker Nancy Pelosi, of California, estimated that the tax would raise $200 billion to $250 billion — certainly a significant amount but still shy of the roughly $2 trillion in additional spending proposed over the 10 years under negotiation.
This means that additional taxes — such as global minimum taxes and increased IRS enforcement dollars — are still needed to help close the gap.
Revenue expectations from the wealth tax are also highly debatable.
“It’s impossible to implement,” said Alison Schrager, a senior fellow at the Conservative Manhattan Institute. “There is a lot of evidence that these things don’t work, and I’ve never heard an explanation of how that works.”
Why should Biden go this way?
The president prefers higher corporate tax rates and rates to wealthy individuals. This was his initial suggestion. But he needs to appease Senator Joe Manchin, Deutsche Welle Virginia, and Senator Kirsten Senema, D-Ariz. Democrats win or break votes in an evenly divided Senate.
Sinema objected to higher rates, which led to the implementation of a wealth tax as an alternative.
The idea gained traction after the publication of French economist Thomas Piketty’s book Capital in the Twenty-first Century. Senator Elizabeth Warren, a Democrat, instituted a 2% wealth tax as a business policy in the 2020 presidential primary. Fellow candidate Senator Bernie Sanders, I. Vermont, proposed his own wealth tax.
Biden never jumped on that bandwagon. But he made higher taxes on the wealthy a key promise, saying he would not pay anyone less than $400,000 more.
Is the wealth tax constitutional?
If passed, it would likely be challenged in court, most likely under Article 1, Section 2 of the Constitution, which states: “The direct taxes shall be apportioned among the many states which may be included in this union, according to their own figures.”
This means that revenue from “direct” taxes must reflect the state’s population, which is a problem because billionaires tend to congregate in places like California and New York.
If so, how does the federal government impose income and payroll taxes? This is because of the Sixteenth Amendment, which allows Congress to “impose and collect taxes on income, from any source derived, without apportionment among the many states.”
So what really matters is whether the Supreme Court would interpret the wealth tax as a direct tax on property, which would be unconstitutional, or whether it was primarily a tax on income, which is permissible.
Are billionaires really rich?
American billionaires have seen their combined wealth increase by 70% since the start of the pandemic to more than $5 trillion, according to an analysis by Americans Pro-Wealth Tax for Tax Justice and the Institute for Policy Studies on Inequality. Those gains from March 18, 2020 to last month are on par with Biden’s 10-year spending plans.
There were 614 American billionaires at the start of the pandemic. That number has now grown to 745.
“Right now, billionaires are not paying a cent in taxes on their massive property income gains during the pandemic,” said Frank Clemente, executive director of Americans for Tax Justice. “The billionaire’s income tax will tax the increase in the value of those assets each year, just like workers’ wages taxes.”
Can billionaires escape taxes?
They’ve found ways before.
They can hire a fleet of lawyers, accountants, and others to reduce their tax burden. News firm ProPublica exposed several tax shelters with IRS data earlier this year, and Pandora’s latest papers showed that there is a global industry to protect the assets of the politically powerful and the very wealthy.
A ProPublica investigation showed that Warren Buffett paid an average of 19%. Amazon founder Jeff Bezos paid 23%. Elon Musk of Tesla was about 30%. The highest tax rate on income earned from a business is 37%, but the tax on capital gains is 20% lower, and this favors those with great wealth. A lower rate of capital gains can also encourage more investment in new companies that help the economy grow.
a White House Analysis In September he noted that the nation’s 400 richest families paid an average federal income tax rate of 8.2% between 2010 and 2018. The administration’s core message is that this low rate is unfair because middle-class families often pay a larger share of their income in taxes .