HomeNewsThe "Billionaire Minimum Income Tax" proposed by President Joe Biden would affect...

The “Billionaire Minimum Income Tax” proposed by President Joe Biden would affect far more people than just billionaires.

On Monday, President Biden said he plans to levy a new tax on the wealthiest families in the United States.

To ensure that the wealthiest Americans “pay their fair share,” he said—an issue that has taken on extra significance in recent years due to the widening of America’s wealth divide since the Gilded Age, which is roughly the same today as it was a century ago.

 

According to the plan, the “Billionaire Minimum Income Tax” would apply to the approximately 30,000 households in the United States with assets in excess of $100 million under the “Billionaire Minimum Income Tax.” To put it another way, the tax isn’t just aimed at the country’s 700 millionaires.

To ensure that these households do not pay lower tax rates than much lower and medium-class Americans, a new minimum tax of 20% would be introduced.

Despite the fact that the U.S. tax system is designed to be progressive, some economic studies have indicated that the country’s 400 richest families pay a lower tax rate than the middle class.

Because of tax cuts for the wealthy over the past four decades and the preferential treatment of capital gains, such as profits from the sale of stocks and bonds, this is the case.

Unrealized gains, or profits that exist only on paper because the asset hasn’t been sold, would be the focus of the new tax. Gains are only taxed if they are realized, such as when you sell a stock and make a profit under the present tax system.

As a senior fellow at the Tax Policy Center, Steve Rosenthal, says that any tax that can be dubbed a “Billionaire Tax” is desirable because people think, ‘That is someone else, and they need to contribute more.'” If you’re looking for sympathy, “hundreds-millionaires” certainly aren’t the best option.

According to Garrett Watson, a senior policy researcher at the Tax Foundation, unrealized gains should be taken into account when calculating average tax rates. When it comes to unrealized gains, “and that there should be a minimum floor — and the minimum is 20 percent.”

The following is what we know about the tax so far:

The Billionaire Minimum Income Tax would be paid by whom?

As a tax on billionaires, the idea would disproportionately affect multimillionaires, not billionaires.

To paraphrase Rosenthal, “the most essential thing about the Billionaire Minimum Income Tax is that it’s not on billionaires, it’s not on minimum tax, and it’s not on income.”

According to the Credit Suisse Global Wealth Databook 2021, there are about 30,000 American families with assets above $100 million. There are approximately 700 billionaires in the United States, including Jeff Bezos and Warren Buffett.

An estimated 160 million households file annual tax returns with the Internal Revenue Service, equating to a tax burden of less than 0.01 percent of the country’s total population.

Would the tax raise enough money to cover the costs of the program?

It is estimated that the tax will raise $361 billion over the course of a decade.

With the wealth tax, Mr. Biden’s budget plan predicts fewer government deficits, more money for the police force, and increased support for education, public health, and affordable housing.

Surely someone has already thought of this.

There have been similar ideas from Democratic lawmakers in the past, so it may sound familiar.

Senator Ron Wyden of Oregon, the chairman of the Senate Finance Committee, introduced his billionaire’s income tax proposal last fall. Stocks and other marketable assets would be valued annually under his idea. A tax on billionaires’ gains during that period would be imposed regardless of whether they had sold the asset.

To pay for Mr. Biden’s domestic spending measures, such as the Build Back Better Act, those concepts were discussed. Compromise discussions with Democratic West Virginia Sen. Joe Manchin fell apart, and therefore those budgetary ideas were placed on hold for the time being.

How exactly will the Billionaire Minimum Income Tax be implemented in reality?

When it comes to families worth at least $100 million, the Biden administration states that the tax rate on their whole income, which includes unrealized gains in asset values, will be assessed.

It’s not truly a tax in the traditional sense, in which a portion of your annual income goes to the IRS, according to Rosenthal.

To avoid double taxation of wealthy families, Treasury Department officials say payments would be treated as prepayments that would be applied to future taxes owed on unrealized capital gains; in other words, those wealthy families wouldn’t have to pay taxes twice because the tax would act as a cash advance to the IRS.

When it comes to what Rosenthal called “one of the great loopholes” in the tax system, he emphasized this point: The “step-up in basis” clause allows heirs to avoid paying taxes on unrealized profits when assets are left to them as an inheritance. In this way, the value of an asset is reset to what it was worth at the time of inheritance, which is typically higher.

A woman who buys Apple stock at $1 a share and holds it until she dies is an example of a long-term investor. It will be based on current Apple stock prices when her heirs get the stock. A quick sale means that heirs pay tax on any profit above $175 a share, rather than the amount paid by a woman who purchased stock years earlier.

Unrealized profits are not taxed when they are handed on to beneficiaries – they take their tax basis at fair market value.” Companies that Bezos and Musk built or developed are where they’ve amassed their huge fortunes, according to Bloomberg.

He continued, “All of their potential appreciation will be lost if they keep it until the end. Also, this is incorrect.”

What are the potential roadblocks to enacting this tax?

Experts say there are many unanswered questions concerning whether the tax can be implemented. That’s unlikely to garner Republican support, and because it’s not certain if moderate Democrats would embrace the concept, they noted.

Second, the constitutionality of any statute would very certainly be contested in court.

It’s new territory for us,” Rosenthal admitted.

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