Biden wants the top 0.01% to pay an extra $361 billion over the next decade. Here’s what to know about the new ‘billionaire’ tax
Billionaires could soon be paying a lot more in taxes each year.
Tucked inside President Joe Biden’s 2023 budget proposal, released Monday, is a 20% minimum tax on the income — including unrealized investment income — of households with at least $100 million in assets.
Called the “Billionaire Minimum Income Tax,” Biden’s proposal would require the 0.01% richest families in the U.S. pay at least 20% on their income and unrealized gains on assets such as stocks. Currently, billionaires pay an average federal tax rate of 8.2%, according to a recent report from the White House’s Office of Management and Budget and Council of Economic Advisers — less than half of what many middle class workers pay.
That’s because billionaires generate most of their wealth from assets like stocks, rather than through wages. When the average person earns a paycheck, their wages are taxed immediately. But those who generate wealth through stocks and other assets are only taxed when and if they sell the asset for a profit. And if they’re taxed, it’s at a lower rate than ordinary income.
That allows wealthy Americans to hold on to investments tax-free for many years, often until the time of their death. They can then pass the assets on to their heirs without ever paying capital gains taxes. Biden’s big change is to tax those assets, even when they haven’t been sold yet.
Taxing unrealized gains has been gaining popularity among some Democrats, who say it would ensure that the unrealized income of the wealthiest households in the country doesn’t go untaxed for generations. Last year, Senate Democrats proposed a similar measure.
“The tax code currently offers special treatment for the types of income that wealthy people enjoy,” Biden’s proposal reads. “This special treatment, combined with sophisticated tax planning and giant loopholes, allows many of the very wealthiest people in the world to end up paying a lower tax rate on their full income than many middle-class households.”
Republicans, and even some Democrats, oppose the tax. Senator Joe Manchin, a West Virginia Democrat, said Monday that he doesn’t support the billionaire tax, Bloomberg reported, because it’s impossible to be taxed “on things you don’t have,” which seemed to be his definition for an unrealized capital gain.
“You might have it on paper,” he said, according to Bloomberg. “There are other ways for people to pay their fair share, and I think everyone should pay.”
Without Manchin on board, it is not likely that this proposal would be approved by Congress. Biden needs support from every Democrat to pass the new tax through the 50-50 Senate via a budget procedure called reconciliation that bypasses a possible Republican filibuster.
Here’s what to know about the tax proposal so far.
How would the billionaire tax work?
Wealthy households will only pay more in taxes if they are not already paying 20% on their full income, including taxable income and unrealized income.
If they are paying less than that share, then they will owe a “top-up payment” to reach the minimum, according to a press release.
Households owing money would be able to spread initial top-up payments over nine years. Following that, they would have five years for top-up payments on new income.
The White House says this would effectively be “a prepayment of tax obligations these households will owe when they later realize their gains.”
Which households would it apply to?
Biden’s proposal says the change would apply to the wealthiest 0.01% of households. More than half the revenue would
come from billionaires, and the rest from multimillionaires.
How much money would it raise?
The White House estimates the tax, which would take effect in 2023, would reduce the federal deficit by $163 billion over the next five years, and by $361 billion over the next decade. In other words, the top 0.01% would pay $361 billion over the next 10 years that, under current law, they’d keep in their pockets (or portfolios, to be exact).
How is it different from previous proposals?
Democrats have proposed similar taxes before. Last year, a change written by Senate Finance Committee Chairman Ron Wyden, a Democrat from Oregon, would have applied the 23.8% capital gains tax to unrealized gains for the approximate 700 billionaires earning over $100 million in annual income for three consecutive years, or who have more than $1 billion in assets. That proposal did not move forward.
It is also different from proposals like that of Democratic Senator Elizabeth Warren, of Massachusetts, which call for a flat annual tax on an individual’s assets over a certain amount of money.
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