President Joe Biden introduced a new minimum tax on billionaires on Monday, part of an effort to ensure the wealthiest slice of Americans pay at least some tax on their growing fortunes.
The plan would set up a 20% minimum tax rate on households worth $100 million or more. During the pandemic, America’s billionaires added $1.7 trillion to their cumulative wealth, per the left-leaning Americans for Tax Fairness.
“The proposal remedies the single biggest failing of the tax code – that massive accumulations of wealth regularly go untaxed,” Seth Hanlon, a senior fellow and tax expert at the left-leaning Center for American Progress, said via email. “The proposal is carefully designed to ensure that it only affects the wealthiest 0.01 percent of people, and does so in a way that is practical and administrable.”
Under the newly proposed tax — called the Billionaire Minimum Income Tax — members of America’s .01% will have their income taxed at a minimum of 20%. Notably, that income will include unrealized gains from assets like stocks and bonds. It’s the latest attempt by the Biden administration to target some of the massive gains that America’s wealthiest have accumulated to pay for Democrats’ priorities and cut down the deficit. But previous attempts to raise taxes have been thwarted by fellow Democrats.
America’s wealthiest see most of their income come not from big paychecks, but from assets like stocks that grow in value over time. However, those assets are generally only taxed when they’re sold. Those are called capital gains, and they’re taxed at a far lower rate than traditional income. When the assets are not sold off, the value they accumulate is called “unrealized” capital gains. But, under the White House proposal, unrealized capital gains would be counted as part of income.
This means the wealthiest Americans will be taxed at a minimum of 20% on their “full income – standard taxable income plus unrealized income.” If they’re already paying that, they won’t owe more. But those who are underpaying under the new proposal will owe more to the federal government. They would get five years to comply with the new tax rules.
Some billionaires like Tesla CEO Elon Musk would pay a lot more in taxes to the federal government. Musk’s tax bill would amount to an extra $50 billion over ten years, according to calculations from Gabriel Zucman.
Other Democrats in Congress have similar proposals. Sen. Ron Wyden of Oregon unveiled a plan in late October to tax roughly 700 billionaires. That tax focused solely on unrealized capital gains, taxing them at the usual capital gains rate of 23.8%. The nonpartisan Joint Committee on Taxation estimated that Wyden’s tax would bring in $557 billion over a decade. The White House estimates that their version will bring in $360 billion.
But it’s unclear whether Congressional Democrats will coalesce around the plan. Republicans are generally opposed to tax increases and they’re likely to view the Biden proposal as punitive.
Late last year, there was significant unease among rank-and-file Democrats over the Wyden plan. Sen. Joe Manchin, a Democrat from West Virginia, assailed it as divisive and the proposal fell out of consideration soon after. His office didn’t immediately respond to a request for comment.
During negotiations on Biden’s Build Back Better plan, Sen. Kyrsten Sinema of Arizona torpedoed attempts to raise individual and corporate income tax rates. Her office didn’t immediately respond to a request for comment.
Opposition crept into Democratic leadership ranks as well. Speaker Nancy Pelosi privately assailed the Wyden plan as a public relations stunt. A senior Democratic aide reiterated concerns about Wyden introducing legislative text only days before House Democrats tried to approve Biden’s economic agenda.
It was a timeframe that “made it impossible for the study and vetting that would be required for novel and complicated legislation like that,” the aide said.
Last year, Democrats introduced a 15% corporate minimum tax that had Sinema’s support at around the same time.