The US Senate has long been known as a place where progressive policy proposals go to die, and this week it outdid itself. On Monday, the Biden Administration, as part of his fiscal year 2023 budget, proposed directly taxing the wealth of America’s mega-rich for the first time. Under the new Biden plan, households with a net worth of more than $100 million would be required to pay a federal tax rate of at least 20 percent of their annual taxable income. Additionally, and this is the most novel element, it proposes that taxable income now be defined to include unrealized capital gains, stocks, bonds, and other liquid assets. Under the current tax system, these unrealized capital gains go untouched by the IRS, even as many billionaires use their appreciated assets as collateral for bank loans that finance their lavish lifestyles.
“President Biden is a capitalist and believes that anyone should be able to become a millionaire or billionaire,” the White House said in introducing the proposal. “He also believes it is wrong for the United States to have a tax code that results in America’s wealthiest households paying a lower tax rate than working families.” The economic and political logic of this argument, first made by super-billionaire and aspiring tax reformer Warren Buffett almost twenty years ago, is irrefutable. In 2021, according to White House calculations, America’s 700 billionaires will likely pay federal taxes, on average, on just 8 percent of their total income, including unrealized capital gains. Thanks to a data leak from the Internal Revenue Service to ProPublica last spring, we also know that, in some years, billionaires like Jeff BezosElon Musk and George Soros have did not pay federal taxes absolutely. By contrast, the average tax rate for all taxpayers in 2019 was 13.3 percent, according to the Washington-based Tax Foundation.
Presumably for marketing reasons, the Administration did not call its new plan an estate tax, instead calling it the “Minimum Income Tax for Billionaires.” But if the White House believed that this play on words would improve the proposal’s chances of being enacted on Capitol Hill, it was quickly disappointed. On Tuesday, just twenty-four hours after the proposal was released, Senator Joe Manchinfrom West Virginia, shot him down, saying The hill, “You can’t tax something you don’t earn. Earned income is what we rely on.” In terms of history and economics, this statement made no sense. Taxes on wealth, not earned income, date back to at least ancient Greece. More recently, some countries, such as France, have had difficulty successfully implementing such taxes, but other countries still do, including Norway, Spain, and Switzerland. Still, even if Manchin’s logic is flawed, his political power is assured. Given the implacable opposition of elected Republicans to anything resembling higher taxes on the wealthy, Manchin effectively wields a Senate veto. Now that he has spoken, Biden’s proposal to target plutocratic wealth appears dead on the floor, despite opinion polls consistently suggesting a vast majority of Americans, and even most Republican voters, support the idea.
It is too easy (and justifiable) to get angry with Manchin, who, as to Times research As he reminded us earlier this week, he has made a fortune of his own, albeit a small one compared to the Buffetts and Musks of the world, through a coal company he founded with his brother, in 1988. The West Virginia resident has repeatedly suggested that he would support some kind of new tax on the super-rich, and he said the same thing again this week. But every time someone comes up with a real proposal, he finds a reason not to support it. However, Manchin has not been the only Democratic obstacle. Until recently, he was far from the only member of his party who resisted the idea of taxing wealth directly, year after year, instead of relying on traditional tools like capital gains tax and tax. to heritage, which have many loopholes During the 2020 election campaign, when elizabeth warren and Bernie Sanders made introducing a new annual estate tax a central element of their bids, many moderate Democrats, including Biden, did not support the idea. Last fall, during the abortive Build Back Better negotiations, Sen. Ron Wyden, chairman of the Senate Finance Committee, revived the idea of taxing billionaires’ unrealized capital gains. The White House expressed interest in Wyden’s proposal but abandoned it after it ran into internal Party opposition, including from Manchin and House Speaker Nancy Pelosi, the Washington Mail reported.
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The good news is that the idea of directly taxing unsightly agglomerations of wealth continues to gain momentum and now has the support of the President of the United States. In a political system that was designed in part to prevent usurpations of wealth from wealthy white property owners and that, thanks to the Supreme Court’s Citizens United ruling, is now even more hostage to vested interests than it used to be, this it is a remarkable development. Even if Manchin and the Republicans can block a wealth tax this time, it seems unlikely they can hold out forever. The public supports him and the arguments of the opponents become more and more worn.
Rather than claim that the current tax system is efficient or equitable, opponents of a wealth tax tend to argue that such a tax would be impractical to implement and easy to evade. However, in crafting the new plan, the Biden Administration did its best to address these issues. For example, his proposal says that tax payments due could be spread out over about ten years, giving affected parties more time to pay, while alleviating the potential problem of people facing large liabilities from spikes in the stock market which are subsequently invested. Another potential danger with any wealth tax based on market valuations is that wealthy people will transfer part of their fortunes into illiquid assets, such as works of art or certain types of real estate, which are difficult to value, and again evade payment. of taxes. To discourage this type of evasion, the Administration proposes an additional charge of “deferral” before the possible sale of illiquid assets. One last noteworthy feature of the Biden plan: It is narrower in scope than previous proposals, like the ones Warren and Sanders put forward in 2020. According to the White House, the new tax would raise some $360 billion over ten years. That sounds like a large sum, but at thirty-six billion dollars a year it’s only 0.3 percent of current US GDP.
One observer who recognized the political importance of this moment was Berkeley economist Gabriel Zucman, who helped create the Warren proposal. Writing on Twitter, Zucman described Biden’s plan as “a landmark proposal.” He also published a table estimating the impact it would have on the 10 richest people in the Bloomberg Billionaires Index. By Zucman’s calculations, Musk would owe the IRS $50 billion; Bezos owes thirty-five billion; Buffett, twenty-six billion; Larry Page, twenty-two billion; Sergey Brin, twenty-one billion; Larry Ellison, seventeen billion; Mark Zuckerberg, sixteen billion; Bill Gates, eleven billion; Steve Ballmer, ten billion; and Jim Walton, seven billion. Since these figures are based solely on publicly available information, they should be considered illustrative rather than hard estimates. But they do point out that the new tax would largely target people at the top of the income distribution. As they are the ones who have benefited the most from the new Gilded Age, and from the current tax system, this seems eminently fair to me.