Hiltzik: A tax on billionaires is a necessity. Even the White House knows it

After years of largely theoretical discussions among Democrats, the idea of ​​a billionaire tax has now become official policy.

Kudos to President Joe Biden for putting the billionaire tax on the table as part of his fiscal year 2023 budget proposal. among the wealthy to pay their fair share of taxes is long overdue.

So far, the idea has been identified with the liberal wing of the Democratic Party, proposed in the past by the senses. Elizabeth Warren of Massachusetts and Ron Wyden of Delaware, as well as Sen. Bernie Sanders, I.-Vt.

Biden has now brought it in, though his plan is a bit more modest than the others – his wealth tax proposal would raise about $360 billion over 10 years, according to the White House, less than Wyden’s (507 billion) or Warren ($2.75). trillion). The differences stem in part from the starting point of the tax and how it would be calculated.

The previous proposals provoked a chorus of twists from our beleaguered billionaire class.

Billionaire Leon Cooperman objected to Warren’s plan with profanity, and billionaire Elon Musk tried to tweak Wyden about his proposal, which like the unrealized capital gains targeted by Biden, that is, ie gains in value of assets such as stocks and bonds before they are sold. Wyden responded that Musk’s approach of turning tax policy into a game only underscores the need for a wealth tax.

So will this plan, not least because it directly targets capital gains tax, the favorite loophole of the wealthy.

Biden’s proposal is a minimum 20% income tax on households with more than $100 million in wealth. The White House says more than half of the income would come from households worth more than $1 billion.

If passed, the proposal would be a major step towards closing the gap in tax rates between the middle and working class on one side and the wealthy on the other.

The White House estimated last September that America’s 400 richest families paid an average federal personal income tax rate of 8.2% on $1.8 trillion in income between 2010 and 2018. “A firefighter or a teacher can pay double that tax rate,” Biden said in his budget statement Monday, citing the previous estimate.

The proposal would also draw a clear line between the policies of the Democratic and Republican parties.

The latter practically defined himself as an agent of the rich. Its latest position paper, the “Rescue America” plan released by Senator Rick Scott of Florida, called for raising taxes on the poorest American households. (Scott’s household net worth of around $220 million, by the way, would put him right in the target zone of Biden’s proposal.)

It should also not be forgotten that the last federal income tax restructuring, in 2017, was a GOP project that disproportionately cut taxes on the wealthy.

Biden’s emphasis on the treatment of capital gains is appropriate, as we’ve reported in the past. The reason for this is that capital gains, which receive preferential treatment in several respects, provide the bulk of the income reported by the wealthy. The richer you are, the more your income receives this happy treatment.

In the 2019 tax year, the most recent for which the IRS has released statistics, those who reported more than $10 million in income attributed 57% to net capital gains and dividends ( which also enjoy preferential tax treatment). For households with less than $75,000 in income, the figure was 2.2%.

More than 80% of the latter group’s income came from wages and salaries, which are taxed at a higher rate and taxed as they are earned. For the wealthy group, the figure was only 17%.

According to the Federal Reserve, the top 1% of households by wealth (a threshold that starts at around $11.1 million) owns about 23% of all corporate and mutual fund stocks in the country; the bottom half of all households have a collective of 0.7%.

How do asset owners pretend to be crooks at tax time? Count the paths. First, the top tax rate is lower – 23.8% (including net tax on investment income of 3.8%), compared to the top rate of 40.8% on ordinary income.

Then there’s the fact, as the late USC tax expert Edward Kleinbard never tires of pointing out, that the tax is our only voluntary tax: it’s only levied if and when the owner chooses to sell.

If still in the owner’s estate at death, all incorporated tax is forever extinguished — heirs only have to pay tax on the difference between the value of the asset at the death of the previous owner and its value at the time of the sale, rather than on the difference between its purchase price and its sale price.

This is called base-at-death rise, and it’s a crucial driver of wealth accumulation within family dynasties.

Biden is absolutely right to target capital gains tax manipulation for eradication by proposing a minimum tax on billionaires that includes unrealized capital gains. “The preponderance of capital gains in the portfolios of the wealthy explains why it has been so difficult to bring their tax treatment into line with what the rest of us face.

“This approach means the wealthiest Americans pay taxes as they go, like everyone else, and eliminates ineffective income protection for decades or generations,” Biden said in a fact sheet released Monday. .

You will likely hear from water carriers for the rich that taxing unrealized gains does not compensate asset owners for their losses over the past few years. The numbers show that this is a made-up problem: the stock market has been a very reliable engine of wealth growth and remarkably resilient, even during what the average person might consider bad times.

In the last 40 years, the period from January 1982 to the end of 2021, there have only been seven years in which the Standard & Poor’s 500 index, the best indicator of the overall stock market, has lost value. money. On average, stocks gained 12.4%. A dollar invested at the start of the period was worth $107.13 at the end.

Similarly, in the 21 years of this century (i.e. January 2001 to December 31, 2021), there have only been five years of decline and an average gain of 8.38% per year. . A dollar invested when the ball fell in Times Square on New Year’s Day 2001 is worth more than five times as much today.

Even during the worst economic period of the past 100 years, the Great Depression (defined for our purposes as January 1929 through the end of 1939), the stock market lost an average of 0.6% per year.

In any event, Biden’s proposal would give target households up to nine years to shell out what they owe on existing unrealized gains and five years to pay taxes on new income. This would “smooth out the year-to-year variation in investment income,” the fact sheet says.

The upcoming debate over Biden’s tax proposal will likely focus in part on its constitutionality. This question will be a hobbyhorse aimed at absolving critics of the accusation that they only seek to protect billionaires. But it’s been chewed over and over again by experts, many of whom argue it can be shaped in a way that passes the constitutional mark.

Biden’s characterization of the levy as a “billionaire minimum income tax” — the emphasis on the word “income” — is designed to keep the proposal in the exemption of income taxes from the constitution’s restrictions on how taxes should be calculated.

That’s smart, but it only addresses one of the countless ways spokespeople for the wealthy will try to eviscerate a plan that hits them in their fattened wallets. With so much money at stake, the battle could be fierce.

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