October 28, 2021

Billionaire Tax

“Senior Democrats in the U.S. Congress were at odds on Wednesday over a proposal to tax billionaires' assets to help pay for President Joe Biden's social and climate-change agenda… The Senate's top tax writer, Finance Committee Chairman Ron Wyden, unveiled the idea early on Wednesday, but by afternoon his House of Representatives counterpart, Ways and Means Committee Chairman Richard Neal, said the idea appeared to be too complex to succeed.” Reuters

The plan would apply to those with $1 billion in assets or $100 million in income for three straight years. Tradable assets (such as stocks and bonds) would be taxed on gains each year regardless of whether they are sold. Non-tradable assets would be taxed when they are sold or the owner dies. Initially, billionaires would be retroactively charged on their existing unrealized gains, payable over five years. CNBC

See past issues

From the Left

The left calls for higher taxes on the wealthy but is skeptical that this proposal is the best option.

“Wyden’s plan was meant to raise revenue while fixing an increasingly glaring inequity in the American tax code, which allows ultrarich men like Elon Musk, Mark Zuckerberg, and Jeff Bezos, whose fortunes tend to be tied up in appreciating stock, to live their lives and stack their wealth while paying little if anything to the IRS. All they have to do is avoid selling any shares while borrowing cash at favorable interest rates to live on…

“The savings are even greater if they can hold their assets until death: Thanks to the notorious stepped-up basis rule, today’s plutocrats can pass wealth on to their heirs without anyone ever having to pay taxes on the capital gains they’ve accrued…

“Some have criticized the Wyden plan for allegedly being a complicated rush job. That’s in many ways unfair. Democratic staff had been refining it since at least 2019, when they released a white paper. And in a lot of ways, its pieces were less exotic than they might have seemed at first glance. Many of the plan’s features, including mark-to-market rules, already exist in other parts of the tax code. This would have just applied them to very rich individuals. That said, the tax was complicated, and few within the party had much time to digest its specifics.”
Jordan Weissmann, Slate

“Congress has imposed taxes on individuals’ unrealized gains several times in the past — most recently, a levy on the unrealized gains of taxpayers who relinquish their U.S. citizenship (enacted in 2008). Although none of these taxes has been the subject of a Supreme Court decision, the court might say that the ship has sailed on the idea that ‘income’ depends upon realization…

“But today, the Democrats have an exceedingly rare opportunity to enact meaningful progressive tax reform. They can choose from a menu of constitutionally secure options, including raising rates on high-income earners and corporations, ending tax-free stepped-up basis at death and closing loopholes in the partnership and trust tax laws. Instead, it looks like they may waste this opportunity.”
Daniel Hemel, Washington Post

“It’s a complex plan bound to hit legal roadblocks and create logistical headaches. Fortunately, there’s a sounder idea for targeting the more than $5 trillion America's billionaires have earned yet have paid relatively little in taxes on. It’s based on a plan that was part of President Joe Biden’s revenue proposals earlier this year: Instead of taxing the wealthiest each year, as Wyden would do, Biden’s original plan would tax them upon their death… The estate tax has long been established as constitutionally viable… To tax billionaires, Democrats should keep it simple.”
Alexis Leondis, Bloomberg

"The top marginal tax rate was north of 90 percent from World War II until 1964, when LBJ lowered it to a still-high 77 percent. I’m for something like that, on very high dollars. (A 90 percent rate, by the way, does not mean the government takes 90 cents of every dollar a rich person makes; the 90 percent figure applies only to dollars earned after a very high amount.) I don’t think it’s a coincidence that this was how our era of middle-class prosperity (for white people, it’s important to note) was financed… I don’t recall a lack of innovation between 1942 and 1964 because high tax rates made budding entrepreneurs not want to create.”
Michael Tomasky, New Republic

From the Right

The right criticizes the plan and pushes back against the idea that the wealthy are not taxed enough.

The right criticizes the plan and pushes back against the idea that the wealthy are not taxed enough.

“As a general rule, broad-based taxes—those affecting most people—are more likely to deliver predicted revenues than those that affect a narrow subset of the population. The billionaire tax is about as narrowly focused as tax law gets. One may have little sympathy for the 700 or so billionaires affected by these taxes, but one should also recognize that these individuals also have the most resources to minimize the effect of these laws…

“Second, despite a decade of rising stock and bond prices, assets can still stagnate or drop in value for extended periods. Some have talked airily of being allowed to claim unrealized losses as deductions, but how exactly would that work?… In the 2000s, stocks declined over the course of the decade; if that happens again, the billionaire tax may generate no revenue at all

“Ultimately, this is a wealth tax—albeit on incremental, not total, wealth. The administration’s effort to avoid using the words ‘wealth taxes’ to describe this proposal is sophistry. Put simply, this proposal favors people with inherited wealth who are invested in non-traded assets and mature businesses and hurts people invested in publicly traded equities in growth companies, many of which they have started and shepherded to success. If that is the message that the tax law writers want to send, they should have the decency to be up front about it.”
Aswath Damodaran, City Journal

Democrats are writing tax policy for a $22 trillion economy on the fly… One day it’s an increase in tax rates on corporations and the affluent. But wait, that doesn’t have the votes. How about a carbon tax? That won’t fly either. Hey, there goes Jeff Bezos. Let’s tax him and 699 other billionaires. It polls well. Everyone hates billionaires! Oh, but that may be unconstitutional. We still need money, so let’s try a 15% corporate minimum tax—though be sure to exempt investments in green energy and other pet progressive ideas…

“For a century Democrats have been the party of higher taxes, but at least they paid some attention to the policy merits… This crowd has no clue what the consequences of their proposals will be, and they don’t much care.”
Editorial Board, Wall Street Journal

“Wealth taxes have been tried in a variety of countries, and they have regularly failed. When France created a wealth tax, some 42,000 millionaires left; French President Emmanuel Macron eventually killed it. From 1990 onward, nine out of the 12 European countries that had a wealth tax followed Macron's lead and killed their wealth taxes. So, what's the point of a wealth tax if, in the end, it will fail?…

The point is the punishment. Biden and Warren are seeking to tax dollars that do not yet exist, because the people who have created those dollars are worthy of sanction. While Biden constantly blathers that he is a capitalist who doesn't seek to punish earners — only to make them pay their fair share — he's simply lying…

“Earners in America certainly pay their fair share: the top 1% of income earners pay approximately 40% of all income taxes while earning just 21% of all income; the highest quintile of income earners pay virtually all net taxes in America after income transfers by the government. This isn't about a ‘fair share.’ It's about disincentivizing wealth creation, demonizing it, treating it as a mark of sin.”
Ben Shapiro, Creators Syndicate

A libertarian's take

“People took risks and structured businesses based on an understanding of tax law as it was. For non-billionaires, imagine how you'd feel if something the government had told you was tax-exempt—say, your past charitable contributions or mortgage interest, or accumulated gains in your retirement account—was suddenly going to be subject to taxes. It'd be like changing the rules of a baseball game not just mid-season, but mid-plate-appearance.”
Ira Stoll, Reason

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