How would Biden’s “Billionaire Minimum Income Tax” work?

President Biden said on Monday that he wants to introduce a new tax on him richest families in the US The idea is to make sure the richest Americans “pay their fair share,” he said; The wealth gap in the US is roughly the same as it was a century ago during the Golden Age.

Under the proposal, the new tax, called the “Billionaire Minimum Income Tax,” would apply to approximately 20,000 U.S. families with more than $ 100 million in assets. These homes would be subject to aa new minimum tax of 20%making sure they don’t pay lower tax rates than many low- and middle-income Americans.

While the U.S. tax system is designed to be progressive, with richer citizens paying a larger share of their income than everyone else, some economic research has found that the 400 richest families pay a lower tax rate than the middle class. This is due to four decades of tax cuts for the rich, as well as preferential treatment for capital gains, such as profits from the sale of stocks and bonds, which are taxed at a lower rate than income.

The new tax would work by targeting “unrealized gains” or potential profits that exist on paper because the underlying asset has not yet been sold. Under the current tax code, profits are only taxed if they are made, such as when you sell a stock and make a profit.

“The poll is good for any tax that can be labeled ‘Billionaire Tax’: people think, ‘This is someone else and they should contribute more,'” said Steve Rosenthal, a senior member of the Tax Policy Center. “And the ‘hundred-millionaires’ probably aren’t too nice as a class either.”

The proposal suggests that the tax code should include unrealized gains when considering average tax rates, said Garrett Watson, a senior policy analyst at the Tax Foundation. “And there should be a minimum when looking at unrealized gains, and the minimum is 20%.

Here’s what we know so far about the tax and how it works:

Who would pay the billionaire’s minimum income tax?

Although the proposal is labeled a tax on billionaires, most of the families that would be affected are in fact billionaires.

“The most important thing about the Multimillionaire Minimum Income Tax is that it doesn’t really correspond to the multimillionaire, it’s not a minimum tax and it’s not the income tax,” Rosenthal pointed out ironically.

There are about 20,000 families in the United States with more than $ 100 million in assets, according to Credit Suisse Global Wealth Databook 2021. The tax would also affect the country’s approximately 700 billionaires, including Jeff Bezos, Warren Buffett, Bill Gates and Elon. Musk. .

About 160 million families file taxes with the IRS each year, which means that this tax would affect about 0.01% of all Americans.

How much money would be raised from the tax?

The Biden administration predicts that the tax would raise $ 361 billion in 10 years.

Mr Biden’s draft budget envisions new revenue from sources such as the wealth tax that would lead to a lower federal deficit, more money for the police and more funding for education, public health and housing.

Has this not been proposed before?

If it sounds familiar to you, it’s because Democratic lawmakers have issued similar proposals in recent years.

Last fall, for example, Senate Finance Committee Chair Ron Wyden of Oregon announced his income tax on billionaires. According to his plan, marketable assets such as shares would be valued annually. Billionaires would be taxed on their profits during this period, whether they have sold the asset or not.

These ideas were put forward to pay for Mr. Biden’s internal spending plans, such as the Build Back Better Act. But those spending plans were suspended after talks with West Virginia Democratic Sen. Joe Manchin collapsed.

How would the billionaire’s minimum income tax really work?

Basically, families with a minimum value of $ 100 million would be valued if they pay a tax rate of at least 20% on their total income, which according to the Biden administration would include the unrealized appreciation of assets.

Rosenthal pointed out that the plan is not really a tax in the conventional sense, in which part of your annual revenue goes to the IRS. According to the Department of the Treasury, payments would be treated as an advance payment that would be paid to taxes paid at a later date on unrealized capital gains; that is, these wealthy families would not tax twice because the tax would act as an advance against future capital gains taxes that are triggered when they sell shares or other assets.

This is an important point, Rosenthal pointed out, because it addresses what he calls “one of the big gaps” in the tax system: unrealized gains are not taxed when heirs inherit assets, allowing them to benefit from what is known as “intensification.” with this, the reference price of an asset is restored to its inherited value, which is often higher.

Think of a woman who buys Apple shares for $ 1 a share and holds them until she dies. When its heirs inherit the shares, the new base is Apple’s current retail price, currently about $ 175 per share. If the shares are sold immediately, the heirs pay taxes on the earnings they earn above $ 175 per share, not the $ 1 price paid by the woman who bought the shares years before.

“Unrealized gains held at death are not taxed when passed on to beneficiaries; they take their tax base at fair market value,” Rosenthal said. “Entrepreneurs like Bezos and Musk have been able to amass great fortunes in the actions of the companies they founded and developed.”

He added: “If they keep it to death, all that unrealized appreciation goes away. And that’s not right.”

What obstacles does the proposed tax face?

There are many questions about whether the tax could be enacted, experts say. On the one hand, he is unlikely to get the support of Republican lawmakers, and it is unclear whether moderate Democrats would be behind the idea, they noted.

Second, any bill would likely be challenged in the courts for its constitutionality.

“It’s a pretty unfamiliar area,” Rosenthal said.

With the report of the Associated Press.

In:
• Biden Administration
• tax reform