Biden proposes raising $503 billion over the next 10 years by imposing a 25% tax on people claiming assets of $100 million or more, a source of wealth long beyond the reach of the IRS. are doing. The new levy will be assessed not only on annual income but also on the annual increase in assets held, including stocks and real estate, even if the value added cannot be realized because the assets are not sold.
“I'm a capitalist. If you want or can make a million dollars or millions of dollars, that's great. Just pay your fair share of taxes,” Biden said in his State of the Union address this month. . “Billionaires should not pay a lower federal tax rate than teachers, sanitation workers, and nurses.”
Many independent tax experts say such a tax would be nearly impossible to enforce. The IRS will have a hard time valuing an individual's total net worth, let alone valuing the complex estates of the ultra-wealthy. they say.
“The IRS will never have a comprehensive database of everyone's assets,” said Garrett Watson, a researcher at the right-wing Tax Foundation. , warned that it would create a highly “volatile” asset. Federal revenue sources.
Additionally, Eric Zwick, an economist and tax expert who teaches finance at the University of Chicago, believes that any attempt to value assets may lead to new ways for billionaires to hide those assets. He said it would lead to finding it. Zwick said simpler changes to the tax code could increase income from the wealthy without forcing the IRS to estimate unrealized gains, including those from President Donald Trump. It also includes a reduction in the business income deduction claimed on individual tax returns, a tax break created in the 2017 tax cuts.
The change is “very simple and does not require defining a new concept of income,” Zwick said, adding: [Biden’s proposal] Although the economic benefits are relatively low, there is political appeal. ”
Democrats have been looking for ways to correct the imbalance at least since billionaire investor Warren Buffett complained in 2011 that he was paying a lower tax rate than his secretary. It may even gain momentum at the global level. After reaching a historic agreement on a minimum tax rate for multinational corporations in 2021, driven in part by the Biden administration, finance ministers used last month's G20 international meeting to introduce a minimum personal tax rate for everyone. We discussed the creation of . Among the world's 3,000 billionaires.
“The movement has become more active over the past 10 years. [that recognizes] We need to raise marginal tax rates on the wealthy. But if we don't tax unrealized gains, we haven't really gotten to the root of the problem,” said David Kass, an analyst with the left-leaning group Americans for Tax Fairness. As a matter of victory campaign, he added that he was increasingly considering taxing the tier.
Democratic efforts to target billionaires are based on the premise that simply raising taxes on traditional incomes won't raise revenue from the wealthiest people.
Sen. Elizabeth Warren (D-Mass.) said, “The entire tax code is a giant block of Swiss cheese that any smart tax accountant can decipher on behalf of the very rich and the big corporations.” She said: “It's not that we don't understand what a marginal tax is or what a progressive tax structure looks like. The problem is all the exceptions built into the code.”
Warren and other leftists want to change the definition of income. They refer to very wealthy people with little wage income. Obtain a tax-free loan to make a living on your investments before passing on your tax-advantaged appraised assets to your heirs. This strategy, called “buy, borrow, die,” was detailed in a 2021 ProPublica investigation and helped bring new attention to the idea of taxing wealth rather than income.
Senate Budget Committee Chairman Sheldon Whitehouse (DR.I.) said he believes it is worth the time for the IRS to conduct the type of complex investigation required to collect a wealth tax. “Each [high-net-worth taxpayer] “It may take a lot of effort to figure out the unrealized gains, but once you pay the taxes for it, it can easily be worth it,” he said.
Biden has often claimed that billionaires pay an effective tax rate of just 8%. However, this figure is based on a very broad definition of the wealthy's “income”, which includes not only money earned in wages and capital gains, but also appreciation in the value of assets. According to Treasury calculations, people in the top 1 percent of the income distribution pay, on average, more than 20 percent of income taxes and more than 30 percent of all federal taxes.
The issue has even reached the Supreme Court, which this term heard a lawsuit brought by activists seeking to preemptively block Congress from taxing unrealized profits. They argued that it is unconstitutional to impose such a tax on held assets whose owners have not yet received their value.high court A ruling on the case is expected in the spring.
Democrats have long tried to target the wealthy with new taxes, often running into strong opposition from Republicans and beyond.
As president, Barack Obama unsuccessfully pushed for the “Buffett Rule,” which would require Americans to pay at least a 30 percent tax rate on incomes over $1 million a year.Even when the Democratic Party They have controlled both houses of Congress, but have had to scale back their tax ambitions. Two years ago, for example, Democrats unsuccessfully tried to repeal the “graded basis” that allows families to avoid taxes on appreciated holdings that they pass on to their heirs. Resistance from moderate Democrats such as Sen. Joe Manchin III of West Virginia served as a powerful deterrent.
Interest rates for the wealthy used to be much higher than they are now. For example, when President Franklin D. Roosevelt took office in 1933, he raised the top tax rate from 25 percent to 63 percent. During World War II, the top tax rate rose again to over 90%. And when President Ronald Reagan took office in 1981, a couple still paid the top marginal tax rate of 70 percent on every dollar they earned over $215,400, equivalent to $730,000 today.
President Reagan pushed for lowering the top tax rate to 50% in his first year in office, and to 28% in his second term. Since then, the top tax rate has remained within a fairly narrow band, and currently the top tax rate for married couples with incomes above $693,750 is 37 percent.
Meanwhile, Republicans continue to oppose any kind of tax increase. Stubborn. Last week, Rep. Lisa C. McClain (R-Mich.) argued with White House Budget Director Shalanda Young about how much the wealthy should pay, stating that in 2020, the top 1 percent of earners will pay 42 percent of all income taxes. He pointed out that he was paying.
“What is the number that wealthy people and big corporations have to pay to feel like you and this administration have paid their fair share?'' McClain said. “We should celebrate those people.”
Meanwhile, Democrats have redefined what it means to be rich. Mr. Obama campaigned on a promise not to raise taxes on the middle class (couples earning less than $250,000 a year). But during fiscal cliff negotiations in 2012, he and then-Vice President Biden adjusted the definition to include up to $450,000 in income for married couples, which Biden said was At least that is the standard we have adopted.
“Republicans don't want to tax anyone, and Democrats don't want to tax 98 percent,” said Michael Graetz, professor emeritus of tax law at Columbia University. “That’s where we are.”
