Here’s how Biden’s billionaire income tax would work | Business and Economy News


A “Billionaire Minimum Income Tax” is included in US President Joe Biden’s fiscal year 2023 budget proposal — part of the administration’s effort to reduce the United States 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 the tax is a major question as the administration outlines its hope to tax the nation’s highest earners.

Here’s how it would work:

How would the tax apply?

The budget proposes that households worth more than $100m pay at least 20 percent 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 unrealised gains over nine years, and then for five years on new income going forward. Stretching payments over multiple years is meant to smooth yearly variations in investment income, while still ensuring that the wealthiest end up paying a minimum tax rate of 20 percent. In effect, the Billionaire Minimum Income Tax payments are a prepayment of tax obligations these households will owe when they later realise their gains.

This is an extremely nuanced policy. The tax is targeting the ultra-wealthy. It’s taxing gains achieved from their wealth, but it’s real and unrealised 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 notes, “This is a minimum income tax that includes the true economic value” of income that can be held for a very long time.

Who would see the impact?

Roughly 700 billionaires would be affected by the tax proposal, the White House says, estimating that these individuals increased their wealth in 2021 by $1 trillion, paying roughly 8 percent of their income and unrealised gains in taxes.

“A firefighter or teacher can pay double that tax rate,” according to the White House.

Elon Musk, Bill Gates, Jeff Bezos, Warren Buffet and Michael Bloomberg are just a few well-known individuals who could see the earnings on their holdings taxed under this proposal if it were to become law.

How much money would it raise?

According to the White House, $361bn over 10 years. The budget proposal contains an additional $1.4 trillion worth of revenue raisers, which would include a higher top tax rate of 39.6 percent on individuals and an increase in the corporate tax rate to 28 percent.

How do voters feel?

The subject of tax avoidance has grown in recent years. A ProPublica report from last June outlined how the wealthiest Americans can legally pay income taxes that are a fraction of what middle-income Americans pay on their 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.

A 2017 Gallup poll states that slightly more than six in 10 Americans say that upper-income people pay too little in taxes.

Is Congress likely to approve the measure?

Donald Williamson, an accounting and taxation professor at American University in Washington, DC, says, “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.

That will require buy-ins from West Virginia Senator Joe Machin and Arizona Senator Kyrsten Sinema, who have each objected to proposals to tax the ultra-wealthy in the past.

Steve Wamhoff, director of tax policy at the Institute on Taxation and Economic Policy, notes the Democrats “have got this reconciliation vehicle that they can use to pass legislation” and says “this is a step toward a much fairer tax code”.


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