Biden's Terrible Billionaire Tax

Biden’s Terrible Billionaire Tax

By raising the effective tax rate on capital gains, the proposal would reduce U.S. saving, discourage entrepreneurship, and decrease economic output.


(Ron Sachs - CNP / MEGA / Newscom/RSSIL/Newscom)

Say what you will about the Biden administration’s approach to tax-the-rich populism: It’s creative. But creativity does not necessarily translate to sound tax policy.

At the State of the Union address, President Joe Biden reintroduced a proposal for a “billionaire minimum tax.” Not to be confused with the global minimum tax (part of international negotiations at the Organisation for Economic Co-Operation and Development, or the OECD), the corporate book minimum tax (enacted in the Inflation Reduction Act last year), the individual alternative minimum tax (which has been law since 1969), or the old corporate alternative minimum tax (which was repealed in 2017), the billionaire minimum tax is relatively novel in terms of its design—but new doesn’t mean sound either.

Currently, people pay taxes on gains in the value of an asset, like stock appreciation or the growth of a privately held business, when the asset is sold. If an asset is held for under a year, gains face ordinary income tax rates. If held for longer, gains face reduced rates, topping out at 23.8 percent. Deferral of capital gains taxes reduces the effective tax rate, and in some cases, capital gains tax liability can be completely avoided due to a provision that excludes capital gains at death.

Biden’s proposal would tax unrealized gains—the increase in an asset’s value, even before it’s sold. Taxpayers with net wealth above $100 million would have to pay a minimum effective tax rate of 20 percent on an expanded measure of income that adds unrealized capital gains to more conventional sources of income, like wages, business income, and investment income. If ordinary taxes paid as a share of the expanded definition of income fell below 20 percent, the taxpayer would owe additional taxes to bring the rate up to 20 percent. Any additional taxes paid as part of the minimum tax would be treated as prepayments of future capital gains tax liability when gains are actually realized.

By raising the effective tax rate on capital gains, the proposal would reduce U.S. saving, discourage entrepreneurship, and decrease economic output.

The real risk to growth comes from raising taxes on the returns to risky investments: Investing in startups and new technologies that may provide huge returns—both socially in terms of innovation and productivity and privately for the investor—would be discouraged by higher taxes. Meanwhile, the tax burden would rise for domestic savers, but not for foreign savers, giving them a relative advantage. In response, domestic saving and income would fall, and foreigners would finance a greater share of U.S. investment opportunities, enjoying a greater share of the returns.

An annual tax on paper gains would be conspicuously complex. The largest administrative problems relate to valuing non-tradable assets like privately held businesses and taxing illiquid taxpayers with large gains on paper but little cash on hand to pay a minimum tax bill. The proposal attempts creative solutions, like formulaic rules and longer payment periods, but each would introduce new complexities, opportunities for tax planning, and the potential for disputes with the already-overwhelmed Internal Revenue Service.

Even with creative rules, the billionaire minimum tax could still result in the U.S. Treasury paying cash refunds to high-net-worth individuals in periods of high volatility. Notably, when the proposal was first introduced in October 2021, the stock market was at an all-time peak: Excluding a slight increase in December 2021, the S&P 500 has not reached that level since. At that time, the possible windfall of taxing all those paper gains looked tempting and lucrative, but since the stock market wilted in 2022, that is less appealing.

Given these problems, it’s unsurprising the idea hasn’t caught on around the world. As even prominent left-leaning advocates of taxing unrealized gains note in a paper last year, “No income tax system to date has been able to tax the full return on wealth which includes unrealized capital gains.”

Almost every country taxes capital gains only when they are realized. Moreover, the U.S. policy of taxing long-term capital gains at a lower rate than ordinary income is common; most countries in the OECD tax capital gains at a reduced rate relative to the rate they tax ordinary income, as well as at a reduced rate relative to the U.S. capital gains rate.

Ultimately, the billionaire minimum tax is another manifestation of a disconnect between spending aspirations and tax philosophies.

When the conversation of raising taxes on billionaires arises, conservatives bring up a classic argument: that higher taxes will only drive them out of the country in search of greener pastures. And while there may be some truth to this claim and perhaps even a valid reason behind it, the reality is that accumulating wealth often comes with a sense of obligation and patriotism towards one’s nation. This response is easy to forget when debating whether or not to raise tax rates; however, those who have worked and achieved success are more than likely the best ones to help contribute back into their communities financially, as well as in other aspects.

What happen to Detroit when they jacked the taxes up on an incredible car industry?

Ppl moved out, good workers moved out, city when to shiat. Small businesses left.

Not a good idea to take from workers in the private market. We don’t need government

How many billionaires in Detroit were impacted by the event that you describe, that never happened?

Well when ppl leave you can’t create billionaires, when you create a welfare state it kills entrepreneurs who could become a billionaire.

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Don’t see the problem. Currently we target poor people. Now we’ll target everyone.

So what you are saying is if you don’t have money, you can’t contribute to society and are, therefore, of no value.

I really get annoyed at the way people with a ton of money get lauded for their charity, when it’s often a tiny percent of their net worth. Bezos started a climate change charity with $10B, which was maybe 10% of his income in that year.

The average schmo who donates to the Sierra Club will end up giving more of their lifetime’s earnings than Bezos. But, let’s laud the rich, because their philanthropy and “hard work” counts and yours doesn’t.

We literally built this country with men and woman that had no money, lol some of our founders died poor. Clarence Thomas lived in horrible conditions, Ben Carson. Learn American history, learn why liberty is far more important than wealth.

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It’s one thing for billionaires to want to enjoy the fruits of their labor — it’s quite another for them to exploit tax loopholes (which disproportionally benefit the very wealthy) while everyone else pays more than their fair share

I actually agree with you on that. So… who is responsible for those loopholes? If you say Republican politicians, you are only half right. :wink:

There are plenty of Democrats who have exploited this as well, Manchin being among the worst.

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Right up there with Nancy, Chuck and Adam… and the Clintons, Obamas, etc…

I don’t want job creators or entrepreneurs to give a dime to the government. End cradle to the grave dependency programs, and then we can talk more taxes.

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Yeah, you apparently want the wage slaves who work for them to foot the bill.

Lol as your side sends billions to African oligarchs using child slave labor to build your green parts to sell in America…

You have no right to talk about slavery democrat.

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What a weak deflection. Your point still stands. You’d rather the wage slaves and those Americans struggling to get by to pay even more in taxes than the wealthy. That’s absolutely disgusting and downright un-American.

I’d take 2 bucks an hour in my city if it went back to respecting our bill of rights and liberties.

Ppl DIED to get to this country, ( to be free and work), for very low wages. You should move to a major urban area. You would notice the most over regulated, over taxed areas have death numbers that are far worse than war zones. Ppl shit on side walks, sleep on the street, stick needles in their arms.

Low wages isn’t in anyway slavery.

This is perhaps dumbest thing that I have ever read.

Low wages and debt are a form of slavery in today’s society. People can’t save money to pay off debt while wages are barely able to cover the necessities needed to survive. Their hard-earned dollars can be considered a means of indentured servitude, depriving the people of the right to save and advance in life. Breaking free from this financial servitude is a battle that lately doesn’t seem achievable. The labor of hardworking poor and middle-income Americans has become intertwined with poverty levels, making it difficult for social mobility within our own nation.

Finally - if you are willing to take $2 an hour then you must have a trust or inheritance to live off of. Must be nice for you.

Funny you bring up low wages as your side has allowed millions of low wage workers in to the country destroying the American wage lol

You pay off debt by working by learning a skill , you can’t do that a democrat run areas they control every aspect of every way you make money. Over regulations helps big corporations and unions monopolize the market . Now every dem run area has one or two or three large trade unions, that kills the small man’s ability to work.

Deregulate, bring back our liberties. You solve all your issues.

Those businesses you love so much are doing a great job of hiring all of the undocumented that you speak of, without penalty. Your beloved unregulated free market is driving the demand of these low-skill and low-wage workers.

Nice try though!