The Joe Biden administration is looking into proposing a minimum tax called the “Billionaire Minimum Income Tax” that will be levied on the 700 richest Americans as part of its 2023 budget proposal.
The Billionaire Minimum Income Tax is expected to hit households that are worth more than $100 million with a 20% minimum tax rate expected based on the plan by Biden’s administration.
According to Forbes, the 20% tax rate would apply to billionaires’ “full income,” including wages and unrealized gains on their investment portfolios, including stocks and bonds, which currently aren’t subject to taxes until they’re sold at a profit.
Billionaires paying below 20% in taxes on this expanded definition of income will have to make up the difference, while anyone paying more than 20% will not owe additional taxes.
The White House Office of Management and Budget and the Council of Economic Advisers estimated 400 billionaire households paid an average of 8.2% of their income in federal taxes between 2010 and 2018.
“The Billionaire Minimum Tax is fair, and it raises $360 billion that can be used to lower costs for families and cut the deficit,” Biden said at a press conference on Monday.
The proposal is a bid to reform what the White House described as a tax code “that has rewarded wealth, not work, and contributed to growing income and wealth inequality in America.” Based on America’s current tax code, the nation’s richest have a lower tax rate than middle-class Americans.
“Under current law, when an American worker earns a dollar of wages, that dollar is taxed as they earn it. But when a billionaire earns income because their investments increase in value, that gain is too often never taxed at all,” Biden said.
Is Biden’s Billionaire Minimum Income Tax a good idea?
Based on the proposal, the minimum tax “would eliminate the ability for the unrealized income of ultra-high-net-worth households to go untaxed for decades or generations.”
Only the wealthiest 0.01% of households would be subject to the tax, with the White House estimating that revenue from billionaires will account for about half of the $360 billion it is projected to raise in revenue over the next decade.
The country’s more than 700 billionaires increased their wealth by $1 trillion in 2021, and paid roughly 8 percent of their income and unrealized gains in taxes, according to the White House.
However, according to Washington Examiner, the tax is a bad idea because taxing unrealized gains is both fundamentally unfair and economically absurd. “The Biden tax plan is crackers,” Cato Institute economist Chris Edwards said. “Unrealized gain is not income. It represents the expectation of future income, which would be taxed in the future under a well-designed tax system. Often, expected future income doesn’t materialize and asset values drop.”
Moreover, a “capital gain” is just a fancy way of saying “value gain on a productive investment.” It’s simple Economics 101 that when you tax something, you get less of it. Do we really want the tax code to (further) discourage productive investments? — added Edwards.
Biden’s plan could also drive more investment returns overseas. “The proposal would increase the tax burden on domestic saving in the U.S., which could impair capital investment and formation over the long run,” Tax Foundation senior policy analyst Garrett Watson told the Washington Examiner.
“Even if capital investment still occurred at current levels, it is likely that more of it would be conducted by foreign investors who are not subject to this tax on their savings. That would increase the amount of investment returns going abroad, reducing American incomes over the long run.”
However, the Biden administration sees the tax implication in another light. According to the proposal, the Billionaire Minimum Tax would allow wealthy households to spread some payments on unrealized income over nine years, and then for five years on new income going forward.
“A firefighter and a teacher pay more than double” the tax rate that a billionaire pays, Biden said. “That’s not right. That’s not fair.”
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