In the latest Democratic effort to increase the tax bill for the super-wealthy, President Joe Biden is calling for a 20% minimum tax on multi-millionaires and billionaires in his new budget.
The “billionaire minimum income tax” is a new take on Biden’s recurring pledge to make the rich pay their “fair share.”
Instead of raising the pre-existing tax rates, this proposal is setting a new floor to make sure households worth at least $100 million are paying a 20% minimum — and the value of their untapped, unsold assets can all count as a way to tally the bill, the proposal says.
“This minimum tax would make sure that the wealthiest Americans no longer pay a tax rate lower than teachers and firefighters,” the White House said.
“‘This minimum tax would make sure that the wealthiest Americans no longer pay a tax rate lower than teachers and firefighters.’”
— The White House
The tax code offered “special treatment” to the well-off that people farther down the income ladder were unable to access, a White House budget document said. Combined with complex tax planning, the result for the rich is a lower real-life tax burden for the rich, the document said.
The 20% minimum, which would pull more than half of its revenue from billionaires, would “finally address this glaring problem,” the White House Fiscal Year 2023 budget document said.
There was a time when many rich households were engaged in all sorts of tax planning to minimize and brace for potential tax hikes, going back to Biden’s days as a presidential candidate.
So should they be budgeting on this tax proposal becoming law, in its current form or at all? “Biden’s wealth tax is unlikely,” wrote analysts at Cowen Washington Research Group.
“Democrats love proposing taxes on the wealthy. The White House’s latest billionaire minimum tax is sure to earn plaudits from progressives. But the pathway for passage in Congress remains muddied,” according to researchers at Beacon Policy Advisors, a policy research firm for institutional investors.
Stir the Democratic party base
“Even if the White House can’t get this enacted, Democrats have something to stir the party’s base this fall,” Greg Valliere, chief U.S. policy strategist at AGF Investments, wrote in a note.
Biden’s long had his eyes on the taxes — of allegedly lack thereof — paid by the elite.
The country’s richest 400 families paid an average 8.2% income tax rate when factoring the pools of untapped wealth like unsold stock that go untapped because the wealth isn’t being “realized” or sold for a profit, the White House’s Council of Economic Advisors and the Office of Management and Budget said last year.
“‘Even if the White House can’t get this enacted, Democrats have something to stir the party’s base this fall.’”
— Greg Valliere, chief U.S. policy strategist at AGF Investments
Despite the untapped wealth on paper, the super-rich can borrow against their assets in an approach known as “buy, borrow, die.”
White House researchers focused on the 20210-2018 time period — years before the pandemic deepened those deep pockets of America’s wealthiest individuals.
As a candidate, Biden ran on tax rate hikes for the rich, putting the top rate back at the Obama-era 39.6% from 37%. Biden’s other steps included a capital gains rate at 39.6% for millionaires, up from the preferential 20% rate, and the elimination of tax provisions allowing heirs to sidestep a lot of capital gains tax on their appreciating assets.
But between the Democratic party’s razor-thin margins in the House of Representatives and Senate, Biden was unable to turn those proposals into law for a spending program to strengthen the social safety net.
Other Democratic proposals took aim at the proverbial 1%, including Sen. Ron Wyden of Oregon. His proposal would have taxed unrealized gains. It didn’t materialize after some Democratic lawmakers, like Rep. Richard Neal, chairman of the House Ways and Means Committee, expressed their doubts.
Can Democrats agree on this proposal?
Observers wondered about the practicality of Wyden’s ideas, like how the Internal Revenue Service would come up with valuations to even set the parameters of what gets taxed and by how much.
“President Biden has put forward a solid proposal that would ensure billionaires pay taxes every year, just like my Billionaires Income Tax. There’s no way to fix our broken tax code without getting at the problem of billionaires avoiding taxes for decades, if not indefinitely,” Wyden said in a statement on Monday.
There’s differences between the two proposals, but Wyden said he and Biden are “rowing in the same direction.”
This would be a “huge” step towards a fairer tax code, said Steve Wamhoff, director of federal tax policy at the Institute on Taxation and Economic Policy, a left-leaning think tank.
“‘The American people want to tax the rich, and they’ll reward Democrats in November if they can do it.’”
— Morris Pearl, chair of the Patriotic Millionaires
The organizations’ own research said the top 1% paid almost a quarter of the combined state, local and federal taxes in the country and took in just over 20% of the income. “The tax code is mildly progressive when you put it all together,” Wamhoff said.
That was a pre-pandemic analysis, and did not factor in unrealized capital gains — doing that, the results would likely look a lot different, he noted.
On the prospects of passage, Wamhoff says Democrats have a couple of things going for them — one being popular opinion polls suggesting that more taxes on the rich have public support.
For example, nearly two-thirds of people (59%) said they were bothered “a lot” by corporations and wealthy households not paying their fair share, according to an April 2021 Pew Research Center poll. Another two in ten people said the issue bothered them somewhat.
In fact, how much the wealthiest companies and individuals pay in tax were the top two complaints about the state of the tax code, the poll showed.
“The American people want to tax the rich, and they’ll reward Democrats in November if they can do it,” said Morris Pearl, chair of the Patriotic Millionaires.
He called Biden’s proposal “a monumental step towards making the richest people in the United States pay taxes every year just like Americans who work for a living.”
Whatever happens, the labeling and messaging matters, analysts noted. Presidential budgets are “often aspirational,” according to the Beacon Policy Advisors noted.
“The well-polled title of this plan is the “Billionaire’s Minimum Income Tax,” Valliere said Monday. “Significantly, it would contain a tax on unrealized gains; even some Democrats are leery of what would be labeled as a ‘wealth tax.’”