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In the latest Democratic effort to increase the tax bill for the super-wealthy, President Joe Biden is calling for a 20% minimum tax on multi-millionaires and billionaires in his new budget.
The “billionaire minimum income tax” is a new take on Biden’s recurring pledge to make the rich pay their “fair share.”
Instead of raising the pre-existing tax rates, this proposal would set a new floor to make sure households worth at least $100 million pay a 20% minimum — and the value of their untapped, unsold assets would all count as a way to tally the bill, the proposal says.
“This minimum tax would make sure that the wealthiest Americans no longer pay a tax rate lower than teachers and firefighters,” the White House said.
“‘This minimum tax would make sure that the wealthiest Americans no longer pay a tax rate lower than teachers and firefighters.’”
The tax code offers “special treatment” to the well-off that people farther down the income ladder are unable to access, a White House budget document said. Combined with sophisticated tax planning, the result for the rich is a lower real-life tax burden, the document said.
“If you make a billion bucks, great. Just pay your fair share,” Biden said Monday.
The 20% minimum, which would pull more than half of its revenue from billionaires, would “finally address this glaring problem,” the White House Fiscal Year 2023 budget document said.
Many rich households engaged in all sorts of tax planning to attempt to minimize and brace for potential tax hikes when Biden first starting talking up tax hikes on the wealthy as a presidential candidate. So should these same households be budgeting on this tax proposal becoming law, in its current form or at all?
“Biden’s wealth tax is unlikely,” wrote analysts at Cowen Washington Research Group.
“Democrats love proposing taxes on the wealthy. The White House’s latest billionaire minimum tax is sure to earn plaudits from progressives. But the pathway for passage in Congress remains muddied,” according to researchers at Beacon Policy Advisors, a policy research firm for institutional investors.
Stirring the Democratic party base
“Even if the White House can’t get this enacted, Democrats have something to stir the party’s base this fall,” Greg Valliere, chief U.S. policy strategist at AGF Investments, wrote in a note.
Biden’s long had his eyes on the taxes — or the allegedly lack thereof — paid by the elite.
The country’s richest 400 families paid an average 8.2% income tax rate when factoring in assets like unsold stock that go untapped because the wealth isn’t being “realized” or sold for a profit, the White House’s Council of Economic Advisors and the Office of Management and Budget said last year.
“‘Even if the White House can’t get this enacted, Democrats have something to stir the party’s base this fall.’”
Using that untapped wealth, the super-rich can borrow against their assets in an approach known as “buy, borrow, die.” White House researchers focused on the 2010-2018 time period — years before the pandemic deepened the pockets of America’s wealthiest individuals.
As a candidate, Biden ran on proposed tax rate hikes for the rich, including putting the top rate back at the Obama-era 39.6% from 37%. Biden’s other steps included a capital gains rate at 39.6% for millionaires, up from the preferential 20% rate, and the elimination of tax provisions allowing heirs to sidestep a lot of capital-gains tax on their appreciating assets.
But between the Democratic party’s razor-thin margins in the House of Representatives and Senate, Biden was unable to turn those proposals into law for a spending program to strengthen the social safety net.
Other Democratic proposals took aim at the proverbial 1%, including one from Sen. Ron Wyden of Oregon. His proposal would have taxed unrealized gains. It didn’t materialize after some Democratic lawmakers, such as Rep. Richard Neal, chairman of the House Ways and Means Committee, expressed their doubts.
Can Democrats agree on this proposal?
Observers wondered about the practicality of Wyden’s ideas, like how the Internal Revenue Service would come up with valuations to even set the parameters of what gets taxed and by how much.
“President Biden has put forward a solid proposal that would ensure billionaires pay taxes every year, just like my Billionaires Income Tax. There’s no way to fix our broken tax code without getting at the problem of billionaires avoiding taxes for decades, if not indefinitely,” Wyden said in a statement Monday.
There are differences between the two proposals, but Wyden said he and Biden are “rowing in the same direction.”
The Treasury Department elaborated Monday how the IRS would put Biden’s minimum tax proposal into practice.
Taxpayers with wealth above the $100 million mark would have to report to the IRS yearly about their holdings. Tax officials would want breakdowns by asset class on their “the total basis and total estimated value (as of December 31 of the taxable year) of their assets in each specified asset class, and the total amount of their liabilities,” the document said.
Public, tradeable assets such as stocks would get valued with end-of-year market prices. There would be different methods to put a price tag on “non-tradeable assets” and it would not be a yearly event, the Treasury Department added. “The IRS may offer avenues for taxpayers to appeal valuations, such as through appraisal.”
The minimum tax payments would count as a “prepayment,” credited against future capital-gains taxes, the Treasury Department said. That way, when the asset was finally sold off, it would not be taxed twice, it noted.
Such a system would be a “huge” step towards a fairer tax code, said Steve Wamhoff, director of federal tax policy at the Institute on Taxation and Economic Policy, a left-leaning think tank.
“‘The American people want to tax the rich, and they’ll reward Democrats in November if they can do it.’”
The organization’s own research said the top 1% paid almost a quarter of the combined state, local and federal taxes in the country and took in just over 20% of the income. “The tax code is mildly progressive when you put it all together,” Wamhoff said, but the code could further in taxing the riches of the super-wealthy.
ITEP did its analysis pre-pandemic, and did not factor in unrealized capital gains — doing that, the results would likely look a lot different, he noted.
On the prospects of passage, Wamhoff says Democrats have a couple of things going for them — one being popular opinion polls suggesting that more taxes on the rich have public support.
For example, nearly two-thirds of people (59%) said they were bothered “a lot” by corporations and wealthy households not paying their fair share, according to an April 2021 Pew Research Center poll. Another two in 10 people said the issue bothered them somewhat.
In fact, how much the wealthiest companies and individuals pay in tax were the top two complaints about the state of the tax code, the poll showed.
“The American people want to tax the rich, and they’ll reward Democrats in November if they can do it,” said Morris Pearl, chair of the Patriotic Millionaires.
He called Biden’s proposal “a monumental step towards making the richest people in the United States pay taxes every year just like Americans who work for a living.”
Whatever happens, the labeling and messaging matters, analysts noted. Presidential budgets are “often aspirational,” Beacon Policy Advisors noted.
“The well-polled title of this plan is the ‘Billionaire’s Minimum Income Tax,’” Valliere said Monday. “Significantly, it would contain a tax on unrealized gains; even some Democrats are leery of what would be labeled as a ‘wealth tax.’”
