It’s no secret that the tax code is written to serve the interests of the wealthy. There’s a preponderance of unfair rules—the step-up and carried interest loopholes come to mind—that allow the ultra-rich to pay taxes at much lower rates than working and middle-class Americans while donating money to politicians who will preserve and expand those unfair advantages.
It’s this last reality that makes it so hard to reform the system, but Senator Ron Wyden, the chairman of the Senate Finance Committee, is giving it his best shot with the Billionaires Income Tax, which would be passed in order to “pay for” Biden’s landmark Build Back Better Plan, a bill that is supposed to make historic investments in American families from child care to paid leave to expand the Child Tax Credit.
If it makes it into law—and that’s an “if” big enough to have its own gravitational force, given the extended negotiations on the package and the bill itself—then the tax would prevent people with more than $1 billion in assets or more than $100 million in income for three consecutive years from deferring certain taxes.
“There are two tax codes in America. The first is mandatory for workers who pay taxes out of every paycheck. The second is voluntary for billionaires who defer paying taxes for years, if not indefinitely,” Wyden said in a statement. “Two tax codes allow billionaires to use largely untaxed income from wealth to build more wealth, while working families struggle to balance the mortgage against groceries, and utilities against saving for the future.”
Given that very few Americans have nine-figure annual incomes (largely because of the tax disadvantages), the law would mostly affect the 700 or so billionaires in the United States. It would do so by leveraging new taxes and fees on two kinds of assets:
- Pay taxes on tradable assets. Billionaires would have to pay taxes on gains or take deductions for losses whether or not they sell a tradable asset like stocks. Simply holding onto these assets would no longer allow them to avoid paying taxes year-to-year.
- Pay a deferral charge on nontradable assets. Billionaires would also have to pay a “deferral recapture amount” whenever they sell a nontradable asset like a business interest or real estate for a profit. It would be akin to the interest on the tax deferred while they held that asset, and it would be paid in addition to the usual tax.
UC-Berkeley economist Gabriel Zucman ran the numbers, and he estimates that the top ten billionaires would owe $275 billion in taxes alone during the first five years of the plan. His analysis also showed that these billionaires would definitely stay billionaires by no small amount. (See his chart below.)
How much would the billionaire tax raise?
$275 billion from the top 10 billionaires alone—and probably more than $500 billion for billionaires as a whole
Here are the numbers for the top 10 billionaires—and a short thread explaining how we can know all this
— Gabriel Zucman (@gabriel_zucman) October 26, 2021
Wyden is trying to get this proposal added to the budget reconciliation bill currently being debated within the Democratic Party. To get that done, he will need to gain the support of all 50 Senate Democrats including Kyrsten Sinema, the conservative Democrat whose opposition to raising the corporate tax rate and rolling back the Trump tax cuts got those ideas cut out of the bill.
Senator Joe Manchin, the other conservative who seems to delight in derailing his party’s agenda, has already called the plan “divisive” for taxing billionaires differently. Billionaires are already taxed differently than their peers, just at a much lower rate than everyone else, and especially working families.
These funds would be monumental for a number of reasons, not least of which is because billionaires would be stepping in to pay an effective tax rate much closer to what working-class American families do all the time. And while many Americans have struggled to make ends meet over the past 18 months since the pandemic hit, many billionaires have seen record profit growth in their given industries. Rectifying the connection between these gains and pitching into social programs would create an economically healthier society, one where parents could better afford child care and be able to take time off when having a baby regardless of where they work.
But whether or not the plan actually happens is, as always, another question altogether.