President Joe Biden is currently seeking to raise billions to fund his economic and social agenda.
As a candidate last year, Biden never explicitly endorsed a “wealth tax.”
However, his more conventional proposals were to raise rates on large corporations and the richest Americans have not been met with success.
A special tax on billionaires’ assets, not their income, is being proposed by a Senate Democratic to finance child care, universal pre-kindergarten, child tax credits, leave for family members, and environmental programs.
According to Biden, his proposals would not add a penny to the deficit, so he must sell a tax on the wealthiest .0005% Americans to Congress and voters. Here are some pros and cons of the proposed billionaires’ tax:
Billions of dollars earned by billionaires come from their wealth. These may come from investments e.g. in the stock market.
Nonetheless, individuals with assets or income of at least $1 billion or $100 million for three straight years will be subject to this new tax.
The Associated Press obtained a description of the proposal of Senator Ron Wyden of Oregon, which states that approximately 700 taxpayers would face the additional tax on increases in their wealth, according to this new tax standard.
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The billionaires who hold onto tradable assets, such as stocks, will still be liable for taxes. Any gains in value would be taxed, and losses would be deducted. According to current law, those assets can only be taxed upon sale.
Once those assets are sold, billionaires will also have to pay a tax on non-tradable assets like real estate and business interests.
Additionally, billionaires will be taxed on pre-tax gains during the first year of the proposed tax.
What Percentage OF Money Would Be Raised?
Congressional Speaker Nancy Pelosi predicted the tax would raise between $200 billion and $250 billion, according to CNN.
This is a significant sum but is considerably less than the nearly $2 trillion in additional spending proposed over the next 10 years under negotiation at this very moment.
As a result, the IRS would need to increase enforcement dollars and impose additional levies such as a global minimum tax to close the gap.
Moreover, the revenue forecast from the wealth tax is highly disputable.
“It’s just impossible to implement,” explained Allison Schrager, a senior fellow at the conservative Manhattan Institute.
“There’s a lot of evidence that these things don’t work, and I’ve never heard an explanation of how this could be workable.”
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Why Would Biden Choose This Path?
It was Biden’s initial proposal to raise rates on corporations and the wealthy, but he has to appease western senator Joe Manchin and Arizona senator Kyrsten Sinema.
Those are the only two votes in the Senate that will determine the fate of the Democratic Party.
Sinema objected to higher rates, which brought the wealth tax into play as an alternative.
“Capital in the Twenty-First Century” by French economist Thomas Piketty accelerated the latter idea.
Moving forward, Sen. Elizabeth Warren of Massachusetts proposed a 2% wealth tax during the Democratic primary for president, and Vermont Sen. Bernie Sanders offered his wealth tax proposal.
Unlike many of his fellow candidates, Biden never joined the bandwagon.
Despite this, he promised higher taxes on the wealthy, declaring that those earning less than $400,000 would not face a tax increase.
Do Billionaires Really Have That Much Wealth?
That seems to be the case.
An argument can be made about the optimal ways of taxation.
Would it be better for the economy if wealthy individuals invested their assets in new businesses? Or Maybe, would it be better if some of their tax money was allocated to the government to help fund programs like child care, universal pre-kindergarten, and renewable energy transitions?
There is no doubt that the wealthy are worth taxing if the government “seriously” wishes so, but little or less has been done about it.
A report by Americans for Tax Fairness and the Institute for Policy Studies Program on Inequality shows America’s billionaires’ wealth has grown by 70% since the pandemic started, which is up to $5 trillion.
From March 18, 2020, to this past month, the gain has been equal to the amount Biden planned to spend over a decade.
“Right now, billionaires are not paying a dime in taxes on their fabulous income gains from their stock holdings during the pandemic,” stated Frank Clemente, executive director of Americans for Tax Fairness.
“The billionaires’ income tax would tax the increase in the value of those assets each year just like workers’ wages are taxed.”
At the beginning of the pandemic, there were 614 U.S. billionaires. Today, the number is 745.
One unique aspect of the Coronavirus outbreak is that other Americans, such as the poor have also become richer, although at a much slower rate than the billionaires.
The Federal Reserve reports that the net worth of the bottom 90% of Americans – plus the middle class – rose by about 22% between 2007 and 2008.
As a result of the stock market’s rise, the value of homes rose, and the government provided unprecedented non-interest-bearing loans to small businesses, many Americans believe.
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Do Billionaires Get Away With Taxes?
Well, it is believed there have been ways for billionaires to avoid taxes before.
To minimize their tax burdens, they may have hired armies of lawyers, accountants, and others.
Earlier this year, ProPublica exposed various tax shelters using IRS data, and the Pandora Papers document the existence of a global industry that shelters wealthy individuals and those with political power with their assets.
Warren Buffett paid an average of 19% on tax, Amazon founder Jeff Bezos contributed 23%, and Tesla’s Elon Musk made roughly 30%, according to the ProPublica investigation.
Anyway, the top tax rate on labor income is 37%, but the tax on capital gains is 20%, so it favors wealthy individuals.
Increasing investment in new companies can also spur the economy to grow by lowering the capital gains tax.
A White House study in September found that federal income tax rates paid by 400 of the wealthiest families averaged 8.2% between 2010 and 2018.
Objections to this low rate by the administration are based on the fact that middle-class families pay more taxes from their income.
To close or at least narrow those escape hatches for the wealthy, that is a bottom-line question for Democratic legislators.
There may also be trivialities such as the “deferral recapture amount” and other issues that most Americans are likely to tackle.
Nonetheless, a wealth tax’s success will depend on how it is drafted and implemented – and perhaps on whether Biden’s big agenda can be carried out.