wealth tax

Biden's Billionaire Tax Wouldn't Just Hurt Billionaires

Wealth isn't held the way many believe it is.

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One of the most important lessons in tax policy is that the person who is handed the bill and sends the check to the taxman isn't necessarily the person shouldering the entire cost—or even the bulk of the cost. A tax might first directly hit a few rich taxpayers, but it never remains confined there. Case in point: the logic and marketing of the novel "billionaire tax" introduced in the White House's fiscal year 2023 budget proposal.

As described, it would impose a wealth tax on certain appreciated assets of households worth more than $100 million. This would break new ground in unfair taxation by requiring these households to pay at least 20 percent—composed of both traditional taxes on income and, going forward, unrealized gains in owned liquid assets.

Garrett Watson and Erica York of the Tax Foundation explain how this would work:

Consider a household with net wealth of $200 million, $5 million in ordinary income, $10 million in accumulated unrealized capital gains from a privately held company, and an ordinary tax liability of $1.8 million in 2023….When including unrealized capital gains as income, the household's effective tax rate is 12 percent, below the proposed 20 percent minimum. To increase their effective tax rate to 20 percent, the household must remit an additional $1.2 million in tax ($3 million in taxes paid with a $15 million income inclusive of unrealized gains).

OK, that's stiff, but let's focus on everyone else. President Joe Biden's administration reassures us that we—non-billionaires or millionaires—wouldn't pay a dime of this tax as it would only be imposed on the top 0.01 percent of households, with half of the revenue coming from checks written by billionaires. I wish.

There are many problems with this tax. For instance, it is unclear that taxing wealth as opposed to income wouldn't face constitutional problems, as Sen. Joe Manchin (D–W.Va.) pointed out to the president. In addition, as we have learned from other wealth taxes, it will be administratively prohibitive. This is why most of the European countries that previously had wealth taxes eventually abandoned them.

In addition, it would likely raise very little revenue. This is precisely because capital is mobile and would soon fly to other less-restrictive countries to escape the tax. Alternatively, the owners of the assets in question could be forced to sell—often to foreigners—also leaving less to tax.

More importantly for the purpose of this article, it would reduce U.S. saving and capital formation, which would have consequences for everyone else who isn't a billionaire. The wealth of billionaires isn't held the way most believe it to be—stored as if in gold or cash under their beds. A lot is invested back into their own companies, meaning wealth taxes ultimately hurt their employees.

In the same way, billionaires' wealth is some of the capital that ends up being lent to smaller companies, new entrepreneurs, and other job creators. This is yet another way the wealth tax would hurt non-billionaires.

Finally, as my Mercatus Center colleague Thomas Hoenig recently noted in a Barron's magazine piece about why a billionaire tax should worry the middle class, if such a proposal were implemented, it would very likely be expanded to apply to more and more Americans. He cites the example of the income tax, which Congress passed in 1913 and "topped out at 7% for income above $500,000." $500,000 in 1913 would be over $14 million today. Now, the top tax rate is at 37 percent for income above $539,900.

The same is true of the 1969 alternative minimum tax (AMT). Then, the tax literally applied to only a few super-wealthy taxpayers who were accused of dodging taxes. However, over time, Hoenig explains:

With price and wage inflation, the number of households subject to the AMT increased from 200,000 in 1982 to 5.2 million in 2017, although their real income remained relatively unchanged. The tax was adjusted down in 2018, but only temporarily, and the middle class will again carry a heavier tax burden after 2025.

The bottom line is to be careful what you wish for, because this supposed billionaire tax may inadvertently tax you, too.

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  1. re: "this supposed billionaire tax may inadvertently tax you, too."

    There's no "may" and it's not inadvertent.

    1. Just like the same useful idiots that claimed income tax would only affect "the rich"! As has been clearly shown, over and over, you could tax the top 10% of wage earners at 100% and we still wouldn't be able to balance the budget; especially right now!

      WE HAVE A SPENDING PROBLEM YOU ASS CLOWNS!!!

      1. This new learning amazes me Sir Bedevere.

        Explain to me again how sheep’s bladders may be employed to prevent earthquakes.

    2. Doesn't even rate a mention in the article that they keep framing it as a "billionaire's tax" but starts with assets in excess of $100 million. It's crept down by an order of magnitude before they even put pen to paper.

      They might as well call it AMT 2: Electric Boogaloo.

  2. As described, it would impose a wealth tax on certain appreciated assets of households worth more than $100 million.

    Seeing as most billionaires have things set up so that they own nothing, and receive no income...

    1. "I'vee donated everything to my foundation"

      1. Or have a boating accident while transporting your treasure chest.

    2. Well they certainly don't have wages or salaries. Most people act as if they think they do. They don't have an income in the sense of a paycheck. At best they have gains from investments. The overwhelming bulk are in assets and investments, and one only pays taxes on investments realized, not investments themselves (thank gawd).

      1. This law seeks to change that, and tax unrealized investments.

        Also its not entirely true they don't have wages or salaries, most do, but its little more than symbolic, and certainly not where they actually make their money (for example Jeff Bezos is paid $81,840 for his position as Executive Chairman of the Board of Amazon)

        1. > This law seeks to change that, and tax unrealized investments.

          Which is a profoundly stupid idea. You can manage to tax the billionaire once, then he says screw you and you have nothing more to tax. It's literally killing the goose that lays the golden eggs.

          Take it down to a non-billionaire level to understand it. You own a home. The home is worth $500,000. It's NOT your income, it's your house. Government comes along and takes 25% or 50% or whatever Elizabeth Warren deems is fair punishment for having a bigger house than your neighbor. What happens? Well you have to sell your house to make the payment. Now you have no house. But you have gains from selling the house. Now you pay more. But wait! No one will buy your house because they have this massive tax burden in the form of a house. So you owe all that money but you can't pay it, so government ends up taking eveyrhting you own.

          That's an extreme, so let's make it just investments. You have $500,000 invested. That's not unusual. Maybe it's your retirement. Whatever. Government takes half of it. Do you want to invest any more into that fund? Hell no! It will just get taken away. So you STOP investing altogether, you do a Galt's Gulch and stop producing, stop investing, stop everything, because you're punished if you do. Congrats, we have no investments in the economy, negative growth, everyone on welfare, just like Marx used to fap to.

          1. Which is a profoundly stupid idea.

            That’s your guy!

          2. I know people who, upon inheriting the family home, had to immediately sell it because they couldn't afford the property taxes.

        2. This law is not a wealth tax at all. It is an unrealized capital gains tax and any billionaire who pays anything should immediately fire their tax accountant.

          What doesn't surprise me is that the public discussion has moved from an actual wealth tax to a total Brer Rabbit scam.

        3. This law seeks to change that, and tax unrealized investments.

          It won't succeed, since billionaires can simply transfer ownership of those investments to legal entities that they control but don't technically own.

      2. The overwhelming bulk are in assets and investments

        Most of which are not even owned by them, but by companies and foundations they control.

  3. Why is the stated goal to "hurt" people? The problem isn't that the wrong people are getting hurt, the problem is that the goal that some people are supposed to get hurt.

    1. Do you enjoy living life as a gullible fool?

  4. Stop calling it a "billionaires tax" -- it isn't, not by a factor of 10 (i.e., an order of magnitude.) The proposed tax starts at 100 million.

    And it would harm anyone who invests in things like stocks or bonds or real estate, the types of things those with 100 million-plus would have to sell to pay the tax. Which is pretty much anyone who has a job and manages to save any money.

    1. Serves you right for having a job and managing to save any money

      1. Money and saving are racist.

        1. Also sexist, ableist, homophobic and transphobic.

          1. PAY MY SCHOOL LOANS!!!!

    2. It is already factoring in Bidenflation.

    3. "Dont say billionaire"

    4. "Hectomillionaire" is kind of unwieldy, though. "Decibillionaire"?

    5. Just get rid of all the Marxist idiots.

  5. Consider a household with net wealth of $200 million, $5 million in ordinary income, $10 million in accumulated unrealized capital gains from a privately held company, and an ordinary tax liability of $1.8 million in 2023….When including unrealized capital gains as income, the household's effective tax rate is 12 percent, below the proposed 20 percent minimum. To increase their effective tax rate to 20 percent, the household must remit an additional $1.2 million in tax ($3 million in taxes paid with a $15 million income inclusive of unrealized gains).

    That's a terribly opaque description that only a wonk could understand. Let's try a little better.

    Consider Joe Blow. He bought his house for $100,000 ten years ago and it is now appraised at $200,000. His retirement fund owns 1000 shares of MegaCorp, bought at $10 a share, currently worth $20 a share. Joe has to report that $100,000 + $10,000 of paper increase in value as actual income.

    Where it goes south is not just that Joe has no income, yet, but still has to come up with the tax. Let's say he is in a 20% tax bracket; he owes $22,000 in tax. If he sells his entire retirement fund, he won't even get the full $20,000, because everyone else is in the same boat and trying to sell their MegaCorp stock. He's be lucky to get half that. Where does he get the remaining $12,000?

    That's what's fucked with this tax. of course, it "only" applies to $100M wealth and above -- now. Its floor will drop in the following years.

    1. The floor doesn't need to drop is the problem and that's why these tax schemes are so insidious. They will gradually ensnare more and more taxpayers without doing anything but waiting for inflation to work its magic.

      Fuck Joe Biden and his new AMT.

    2. > Joe has to report that $100,000 + $10,000 of paper increase in value as actual income.

      And he will have to do it every time his investments increase in value. It's literally better just to shove the money under your mattress.

      1. These posts belong on BidenVotersPostingTheirLs

    3. The good news for the lowly $100 millionaires, once they pay this tax once, it will likely be years until they have to pay it again.

      Even for a billionaire, they will only have to pay it for 11 years or so...and their tax bill goes way down every year, too!

      $1B - 20% = $800M
      $800M - 20% = $640M
      $640M - 20% = $512M
      $512M - 20% = $409M
      $409M - 20% = $327M
      $327M - 20% = $262M
      $262M - 20% = $209M
      $209M - 20% = $167M
      $167M - 20% = $134M
      $134M - 20% = $107M
      $107M - 20% = $85M

      After that, they've been punished enough.

      Makes me wonder though, will the government accept appreciated shares as payment of the taxes or will they have to liquidate shares, destroying the market in the process? In that case, it probably won't take 11 years, because the shares will drop in value quite a bit in short order.

  6. "Wealth isn't held the way many believe it is." But facts are racist, patriarchal oppression!

    Seriously. For many people concepts like wealth and income are not quantities but emotions--and for progressives, generally bad things. Trying to get them to realize numerical implications of taxes is like trying to get your toddler to balance your checkbook.

    1. Progressives cannot balance a checkbook either, so...

      1. Considering how many of them are relatively wealthy themselves I doubt that's true. Their problem is that they are more of the let them eat cake mindset while feeling for those with no cake and wanting to get them cake but believing no one will come for their cake in the process.

        1. Just force the baker to bake the cake!

    2. Stroozle in the other thread chalking up Elon's net worth increase in the last decade due to inflation...nothing else in particular happened of course.

      Facts are not only something they cant really grasp, but they are of course the enemy to these people. If they had to use facts, the narrative wouldn't work.

      Much easier to go with a message of "evil rich people bad! Let's take their money because they stole it all anyways!"

      "Trying to get them to realize numerical implications of taxes is like trying to get your toddler to balance your checkbook."

      Ill take the toddler's financial advice over a lefty

  7. They know damn well the "billionaires" that they talk about targeting will find a way to get around it.

    This will end up doing what dems always end up doing: fucking the middle class.

    Billionaires will find a way out of it. When its eventually everyones "unrealized gains" that they come after, theyll have no one to blame but themselves for letting their jealousy open up pandora's box for the govt to tax unrealized gains but never reimburse unrealized losses.

  8. LOL

    Billionaires are literally the base of the modern Democratic Party. It's no accident the 10 richest Americans gained a combined $324 billion in Biden's first year.

    As long as Democrats are in charge, the so-called "billionaire tax" proposal will go one of two ways:
    1. It won't pass at all.
    2. It will pass in a version so mild that billionaires are still much better off under Biden when you also account for his pro-billionaire policies (for instance open borders).

    #OBLsFirstLaw
    #VoteDemocratToHelpBillionaires

    1. I suspect that option #2 is what will occur, but with a goodly amount of pork/earmark bills and various useless horseshit attached. Which isn't to say that this isn't in itself pointless, populist virtue-signaling.

  9. It should be called "The Lawyers and Accountants Full Employment Act".
    My first question is how much will Hunter, Jim, and Joe pay on all the funds from Russia and China?

    1. What makes you think they'll pay taxes on that? They can set up foundations, shell corporations, and other legal entities that let them avoid taxes.

      1. That can set up their ownership as receive options rather than shares. They don't own the shares yet, so they cannot have any income (realized or unrealized) to pay taxes on.

  10. Completely and totally unconstitutional. Not that that's going to stop anyone.

    "The illegal we do immediately; the unconstitutional takes a little longer." -- Henry Kissinger

    208 days to midterms.

  11. Don't you mean the "Don't Say Socialism" Bill?

  12. Why does this article exist? We all know coercive taxation is an immoral violation of the NAP.

  13. Here comes reason carrying Koch's water again, lest they actually pay any sizable tax.

    Fuck the billionaires. You could tax them to kingdom come and they'd still be wealthy as fuck. Why the hell are you arguing for them?

  14. The highest earners already pay the vast majority of personal income taxes. But apparently they aren't paying "their fair share". I told a local Dem "leader" that fact, and he said it couldn't be true. And people elected him.

  15. This tax would result in a stock market crash. However, that really just reflects the fact that we are in a massive stock market bubble, and that bubble is going to burst one way or another as baby boomers retire and try to realize their gains.

    The bubble has been created by endless government spending, money printing, and inflation, and sooner or later, the bill for all those financial sins must be paid.

  16. One thing is for sure; 'fiat' funny money isn't wealth.
    Anyone saving that; just lost their life's savings.

    Produce and the Demand for it is what wealth is (also what benefit it is). No matter how many funny money the leftards take from those that Produce a Demanded product that cost is just going to be handed down.

    Leave it to retarded Democratic Nazi's to STEAL everyone's savings, kill-off (punish) all the people that are benefiting society, and pay lazy, incompetent, self-entitled [WE] mob gangsters packing Gov-Guns against those people.

    Because.... That's what Nazi's do... Conquers (by gov-gun armed theft) and Consumes what someone else had created/earned.

    Isn't it time to acknowledge the left for exactly what they hold dear to their hearts??? Envy, Guns, Theft, etc, etc...

  17. Wealth tax - brought to you by the same morons who think Modern Monetary Theory is a great idea. They think they can just keep printing money with little consequences and then call it Putin's Price Hike. Sick of this tax and spend administration. The mid-terms can't come fast enough.

  18. The average US job requires $500,000 of someone's invested savings to pay for all the stuff needed such as building, parking lot, tooling, machinery, and intellectual property. Every $500,000 taxed away from saved investments kills a good job forever. We are currently shooting ourselves in the foot by taxing realized gains which are reinvested. We should tax only gains which are removed from investments to be spent on consumption.

    1. We should tax only gains which are removed from investments to be spent on consumption.

      I.e., we should have no capital gains or income tax, but finance government through tariffs and sales taxes.

      But the primary problem really is just the size of government. If income and capital gains taxes were in the single digits, their effects on economic behavior would be small.

  19. The real estate tax is a tax on wealth and it is the backbone of local government finance. Furthermore, it is a tax on unrealized gain, at least if the property appreciates in value, because the tax is due before the taxpayer sells the property.

    1. Property taxes aren't taxes on unrealized gains, they are taxes on the assessed value of the property. And while the US finances local government that way, it's arguably a bad way of doing so.

      1. Yes,but the assessed value of property includes an unrealized gain on the value of the property (assuming the property has increased in value)

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