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As congressional Democrats ironed out the details of their ambitious social spending and infrastructure package, the lawmakers considered a novel proposal for paying for it: a billionaire tax. But shortly after the idea was raised, it was axed thanks to opposition among key party members, specifically Sen. Joe Manchin of West Virginia.
The proposed tax was designed to close pathways that have allowed a small number of the country’s richest people to accumulate enormous wealth while paying a lower effective tax rate than most working Americans. Under current law, assets like stocks are subject to taxes only when they’re sold, regardless of how much they go up in value. Had the billionaire tax been enacted, anyone with more than $1 billion in assets would have had to pay taxes on any stocks that increased in value over the course of the year.
Estimates suggest the new tax would have applied to only about 700 people, but this group holds so much of its collective wealth in stocks and other untaxed assets that the tax proposal could have raised between $250 billion and $500 billion over the next 10 years. Tesla founder Elon Musk, the world’s richest person with an estimated $287 billion in personal wealth, would owe as much as $50 billion in extra taxes on his own, according to one analysis.
A proposed framework for the social spending bill released by the White House on Thursday omitted the billionaire tax and instead calls for an increase in income tax rates for Americans making more than $10 million a year.
Why there’s debate
Proponents of the billionaire tax say it would be a major step toward undoing tax loopholes that have allowed a handful of billionaires to avoid paying their fair share of taxes. They argue that, rather than allowing that money to sit idly in billionaires’ stock portfolios, the government should use it to fund desperately needed programs like paid leave, the child tax credit, expanded health care and green energy initiatives.
The billionaires who would owe the most under the proposal were unsurprisingly critical of the plan. “A relentless attack on wealthy people makes no sense,” billionaire investor Leon Cooperman told the Daily Beast. Musk argued on Twitter that the tax would limit entrepreneurs’ ability to fund capital projects. Some of these sentiments were echoed by conservative politicians. Republican Senate Minority Leader Mitch McConnell said the tax would undermine the prospects of the “next visionary start-up founder.”
There were also skeptics on the left, many of whom argued that Democrats shouldn’t concoct a brand-new, complicated tax scheme when it would be much easier to simply raise the rates on existing taxes. Others said it would have been risky to tie critical infrastructure funding to a tax proposal that stands a decent chance of being ruled unconstitutional by a conservative Supreme Court.
It’s unclear whether the framework released by the White House has the backing of the various factions of the Democratic caucus, meaning it may still change. Reports suggest, however, that it’s unlikely the billionaire tax will be part of any final bill.
Untaxed stock holdings are on of the greatest sources of inequality
“The only way to get at wealth inequality in the U.S. is to deal with capital income. Most of this money comes from having money, held in income-generating assets like stocks and other securities, debt contracts, and real estate.” — David Dayen, American Prospect
The programs the tax would have funded would improve the lives of everyday Americans
“We can have nice things. And after 40 years of wire transferring money from the bottom and middle to the tippy tops, the way we can have these things is reclaiming some of our resources through a billionaire tax.” — Political journalist Anand Giridharadas
We have decades of evidence billionaires’ wealth doesn’t trickle down to everyone else
“If billionaires put their tax cuts into the economy like Republicans say, then we should have had a golden age after the Bush and Trump tax cuts. Instead we had global recession and a pandemic [where] millions lost their jobs without enough of a safety net. Raise their effin taxes.” — American Independent writer Oliver Willis
Taxing billionaires directly is a political winner
“There are three things you should know about both taxing the rich and helping children: They’re very good ideas from an economic point of view. They’re extremely popular. And they’re very much in the American tradition.” — Paul Krugman, New York Times
The plan left little room for clever accounting tricks the rich use to avoid paying taxes
“We’ll take what we can get. If, in fact, the current version of the wealth tax does make it into the final bill, it will be something that should make progressives smile. It targets fewer than a thousand taxpayers — the richest of the rich — and it hits them with an assessment on the actual value of their wealth that should be hard to wiggle out of.” — Hamilton Nolan, In These Times
The tax will inevitably have grown to affect more than just billionaires
“Like all taxes, the [billionaire tax] might begin as a tax on a few hundred billionaires (and let’s be honest, they will probably find a way to avoid paying it), but it will almost surely creep down to Joe and Jane Suburbs before long, time being a variable. There is no greater precedent for this than the income tax itself, which started off applying only to plutocrats and is now paid by garbagemen.” — Ryan Ellis, National Review
The billionaire tax is far too complicated
“Instead of creating an entirely new tax code for a few hundred people, it would be easier to address the games of high-fliers directly, such as retaining assets until death, which allows any appreciation to escape income taxation forever. A straight-forward way to end that game: Tax the unrealized capital gains at death at the same rate wage earners pay.” — Steven M. Rosenthal, Tax Policy Center
Determining a true value of billionaires’ assets would be tricky
“Many of the richest people in America own private businesses that are quite hard to value and seem likely to be excluded. The tax could end up exempting a lot of wealth held at the top, which is what we’ve seen with these taxes in Europe.” — Eric Zwick, University of Chicago business professor, to Bloomberg
It would have been a mistake to choose a tax plan that could be tossed out by the courts
“The Democrats have an exceedingly rare opportunity to enact meaningful progressive tax reform. They can choose from a menu of constitutionally secure options. … Instead, it looks like they may waste this opportunity on a measure that, after years of court battles, ultimately accomplishes nothing.” — Daneil Hemel, Washington Post
Truly addressing inequality means taxing more than just billionaires
“At the end of the day, real progressive tax reform involves taxing the upper middle class, or lower rich class. And those are the people that Congress is still wary of spooking at this point.” — Joe Thornike, tax law historian, to Talking Points Memo
Supporters were being misleading about the actual implications of the tax
“Democrats figure that’s a fight for another day. Their sole goal now is to come up with some way, any way, to raise enough revenue on paper, however illusory, to fund their spending bill without losing the votes of Sens. Sinema and Joe Manchin. … Democrats will take any refuge in a political storm, even if it’s a mirage.” — Editorial, Wall Street Journal
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