WASHINGTON (AP) — President Joe Biden’s fiscal year 2023 budget proposal includes a “minimum income tax for billionaires” — part of the administration’s effort to reduce the federal deficit over the next decade and fund new spending. The proposal “eliminates the inefficient shelter of income for decades or generations,” says the White House.
During a press conference highlighting the budget on Monday, Biden said that one-hundredth of 1 percent of Americans would be subject to the tax. “The multi-million dollar minimum tax is fair and raises $360 billion that can be used to lower costs for families and reduce the deficit,” he said.
Whether Congress will pass is an important question, as the administration outlines its hope to tax the nation’s top earners.
This is how it would work:
HOW WOULD THE TAX BE APPLIED?
The budget proposes that households worth more than $100 million pay at least 20% tax on income and “unrealized gains,” the increase in value of an unsold investment. For many wealthy people, the administration says, that “real income” is never taxed, as it can be held for decades and sometimes generations.
Biden’s proposal would allow wealthy households to spread some payments on unrealized earnings for nine years and then for five years on new income in the future. Spreading payments out over several years is intended to smooth out annual variations in investment income, while ensuring that the wealthiest end up paying a minimum tax rate of 20 percent. In effect, the payments of the Minimum Income Tax for Millionaires are an advance payment of the tax obligations that these households will owe when they later make their profits.
This is an extremely nuanced policy. The tax is targeted at the ultra-rich. You are taxing the gains made on your wealth, but it is real and unrealized income rather than simply the underlying assets.
That’s why David Gamage, a tax law professor at Indiana University, says “it’s not a wealth tax, it’s an income tax reform.” He says: “This is a minimum income tax that includes the true economic value” of income that can be held for a long time, he said.
WHO WOULD SEE THE IMPACT?
About 700 billionaires would be affected by the tax proposal, the White House says, estimating that these individuals increased their wealth in 2021 by $1 trillion, paying about 8 percent of their income and unrealized earnings in taxes.
“A firefighter and a teacher pay more than double” the tax rate a billionaire pays, Biden said during Monday’s news conference.
Elon Musk, Bill Gates, Jeff Bezos, Warren Buffet, and Michael Bloomberg are just a few of the well-known individuals who could see their holding gains taxed under this proposal if it becomes law.
HOW MUCH MONEY WOULD YOU RAISE?
According to the White House, $361 billion over 10 years. The budget proposal contains an additional $1.4 trillion worth of revenue collection, which would include a higher top tax rate of 39.6% for individuals and an increase in the corporate tax rate to 28%.
HOW DO THE VOTERS FEEL?
The issue of tax avoidance has grown in recent years. A ProPublica report from last June border how the wealthiest Americans can legally pay income taxes that are a fraction of what middle-income Americans pay on their income. And a Pew Research Center study from last April states that most americans — about 59 percent — say it bothers them “a lot” that some corporations and wealthy individuals don’t pay their fair share in taxes.
A 2017 Gallup poll It finds that just over six in 10 Americans say high-income people pay too little in taxes.
IS IT LIKELY THAT CONGRESS WILL PASS THIS MEASURE?
Donald Williamson, professor of accounting and taxation at the American University of Washington, said: “A couple of years ago, I would have laughed out loud. Today it is conceivable”.
The most likely is through “reconciliation,” a budget process to pass tax legislation with a simple majority of the Senate votes.
That will require buy-in from West Virginia Sen. Joe Machin and Arizona Sen. Kyrsten Sinema, who have opposed proposals to tax the ultra-rich in the past.
Steve Wamhoff, director of fiscal policy at the Tax and Economic Policy Institute, says Democrats “have this reconciliation vehicle that they can use to pass legislation.”
“This is a step toward a much fairer tax code.”
Associated Press writer Josh Boak contributed to this report.