Here’s How Biden’s Proposed Billionaire Income Tax Would Work
“Billionaire Minimum Income Tax” is included in President Joe Biden’s fiscal year 2023 budget proposal — part of the administration’s effort to reduce the federal deficit over the next decade and fund new spending. The proposal “eliminates the inefficient sheltering of income for decades or generations,” the White House says.
Whether Congress will approve is a major question as the administration outlines its hope to tax the nation’s highest earners.
Here’s how it would work:
Which tax is applicable?
The budget proposes that households worth more than $100 million pay at least 20% in taxes on both income and “unrealized gains”— the increase in an unsold investment’s value. For many wealthy individuals, the administration says, that “true income” never gets taxed since it can be held onto for decades and sometimes generations.
Biden’s proposal would allow wealthy households to spread some payments on unrealized gains over nine years, and then for five years on new income going forward. Spreading out payments for multiple years will smooth annual fluctuations in investment income while still making sure that only the richest pay a minimum of 20% tax. These payments, known as the Billionaire Minimum income Tax, are prepayments of taxes these households will have when they receive their earnings.
This policy is extremely complex. It is targeted at the extremely wealthy. It’s taxing gains achieved from their wealth, but it’s real and unrealized income rather than simply the underlying assets.
That’s why David Gamage, a tax law professor at Indiana University says “it’s not a wealth tax, it’s an income tax reform.” He says, “This is a minimum income tax that includes the true economic value” of income that can be held for a very long time, he said.
Were you there to see its impact?
The tax proposal would affect approximately 700 billionaires, according to the White House. They estimate that this group will increase their wealth by $1 trillion by 2021, and pay roughly 8 percent in taxes.
“A firefighter or teacher can pay double that tax rate,” according to the White House.
Bill Gates (Elon Musk), Jeff Bezos (Jeff Bezos), Warren Buffet, and Michael Bloomberg are some of the well-known individuals that could see their earnings being taxed as a result of this proposal.
What amount of money could it bring in?
The White House estimates that $361 billion will be raised over the next 10 years. Additional revenue raising measures are included in the budget proposal, totaling $1.4 trillion. These include an increased top tax rate at 39.6% for individuals, and an increase of 28% for corporations.
Which feelings do voters have?
Recent years have seen a rise in tax avoidance. ProPublica reported last June that the richest Americans are legally able to pay income taxes which only fractionally of those who earn middle income. And a Pew Research Center study from last April states that most Americans — some 59 percent— say they are bothered “a lot” that some corporations and wealthy people don’t pay their fair share in taxes.
Gallup’s 2017 poll found that 66% of Americans think that people with higher incomes pay too little tax.
Are you sure that Congress will pass this bill?
Donald Williamson, an accounting and taxation professor at American University in Washington, said “a couple of years ago, I would’ve laughed out loud. Today it’s conceivable.”
The highest likelihood is through “reconciliation” — a budget process for passing fiscal legislation with a simple majority of Senate votes.
This will need the support of Senator Joe Machin in West Virginia and Sen. Kyrsten Silena from Arizona, both who previously opposed taxing the wealthy.
Steve Wamhoff, director of tax policy at the Institute on Taxation and Economic Policy, says the Democrats “have got this reconciliation vehicle that they can use that to pass legislation.”
“This is a step toward a much fairer tax code.”
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