The US Senate has long been known as a place where progressive policy proposals go to die, and this week it outdid itself. On Monday, the Biden Administration, as part of its 2023 fiscal-year budget, proposed directly taxing the wealth of America’s mega-rich for the first time. Under the new Biden plan, households with a net worth of more than a hundred million dollars would be obliged to pay a federal tax rate of at least twenty per cent of their annual taxable incomes. In addition — and this is the most novel element — it proposes that taxable income now be defined to include unrealized capital gains, stocks, bonds, and other liquid assets. Under the current tax system, these unrealized capital gains go untouched by the IRS — even as many billionaires use their appreciating assets as collateral for bank loans that finance their lavish life styles.
“President Biden is a capitalist and believes that anyone should be able to become a millionaire or a billionaire,” the White House said in unveiling the proposal. “He also believes that it is wrong for America to have a tax code that results in America’s wealthiest households paying a lower tax rate than working families.” The economic and political logic of this argument, which the über billionaire and would-be tax reformer Warren Buffett first made almost twenty years ago, is unimpeachable. In 2021, according to the White House’s calculations, America’s seven hundred billionaires will likely pay federal tax, on average, of just eight percent of their total income, including unrealized capital gains. Thanks to a leak of Internal Revenue Service data to ProPublica last spring, we also know that, in some years, billionaires like Jeff Bezos, Elon Musk, and George Soros have paid no federal taxes at all. By contrast, the average tax rate for all taxpayers in 2019 was 13.3 per cent, according to the Washington-based Tax Foundation.
Presumably for marketing reasons, the Administration did not label its new plan a wealth tax, instead calling it a “Billionaire Minimum Income Tax.” But if the White House believed that this wordplay would improve the proposal’s chances of being enacted on Capitol Hill, it was quickly disappointed. On Tuesday, barely twenty-four hours after the proposal was unveiled, Senator Joe Manchin, of West Virginia, shot it down, telling The Hill, “You can not tax something that’s not earned. Earned income is what we’re based on. ” In terms of history and economics, this assertion made no sense. Taxes on wealth, not earned income, go back at least as far as ancient Greece. More recently, some countries, such as France, have run into difficulties successfully implementing such taxes, but other countries still have them, including Norway, Spain, and Switzerland. Still, even if Manchin’s logic is faulty, his political power is secure. Given the implacable opposition of elected Republicans to anything resembling higher taxes on the rich, Manchin effectively exercises a veto in the Senate. Now that he has spoken, the Biden proposal to target plutocratic wealth appears dead in the chamber, even though opinion polls consistently suggest that a large majority of Americans, and even most Republican voters, support the idea.
It’s all too easy (and justifiable) to rage at Manchin, who, as a Times investigation reminded us earlier this week, has made a fortune of his own — albeit a small one compared with those of the Buffetts and Musks of the world — through a coal company he founded with his brother, in 1988. The West Virginian has repeatedly suggested that he would support some sort of new tax on the über wealthy, and he said the same thing again this week. But every time someone comes up with an actual proposal, he finds a reason not to support it. However, Manchin has not been the only Democratic roadblock. Until recently, he was far from the only member of his party who opposed the idea of taxing wealth on a direct basis, year by year, rather than relying on traditional tools like the capital-gains tax and the estate tax, which have lots of loopholes. During the 2020 election campaign, when Elizabeth Warren and Bernie Sanders both made the introduction of a new annual wealth tax a central element of their candidacies, many moderate Democrats — Biden included — failed to support the idea. Last fall, during the abortive Build Back Better negotiations, Senator Ron Wyden, the chairman of the Senate Finance Committee, revived the idea of taxing the unrealized capital gains of billionaires. The White House expressed interest in Wyden’s proposal but dropped it after it ran into internal Party opposition, including from Manchin and House Speaker Nancy Pelosi, the Washington Mail reported.
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The good news is that the idea of directly taxing unsightly agglomerations of wealth continues to gain momentum, and it now has the support of the President of the United States. In a political system that was partly designed to prevent encroachments on the wealth of well-to-do white property owners, and which, thanks to the Supreme Court’s Citizens United ruling, is currently even more hostage than it used to be to vested interests, this is a notable development. Even if Manchin and the Republicans can block a wealth tax this time, it seems unlikely that they will be able to hold out forever. The public supports it, and opponents’ arguments are growing increasingly threadbare.
Rather than claiming that the current tax system is efficient, or equitable, opponents of a wealth tax tend to argue that such a tax would be impractical to implement and easy to evade. In designing the new plan, however, the Biden Administration went to some lengths to address these problems. For example, its proposal says that the tax payments due could be spread out over close to ten years, which would give the affected parties more time to pay, while also alleviating the potential problem of people facing large liabilities for spikes in the stock market that are subsequently reversed. Another potential pitfall with any wealth tax based on market valuations is that rich people will transfer some of their fortunes into illiquid assets, such as art work or certain types of real estate, which are difficult to value, and again evade paying taxes. To discourage this type of avoidance, the Administration is proposing an additional “deferral” charge upon the eventual sale of illiquid assets. A final notable feature of the Biden plan: it is smaller in scope than previous proposals, such as the ones that Warren and Sanders put forward in 2020. According to the White House, the new tax would raise about three hundred and sixty billion dollars over ten years. That sounds like a huge sum, but at thirty-six billion dollars a year it is only 0.3 per cent of the US’s current GDP
One observer who recognized the political importance of this moment was the Berkeley economist Gabriel Zucman, who helped create the Warren proposal. Writing on Twitter, Zucman described the Biden plan as “a landmark proposal.” He also posted a table estimating the impact it would have on the richest ten individuals on the Bloomberg Billionaires Index. According to Zucman’s calculations, Musk would owe the IRS fifty billion dollars; Bezos would owe thirty-five billion; Buffett, twenty-six billion; Larry Page, twenty-two billion; Sergey Brin, twenty-one billion; Larry Ellison, seventeen billion; Mark Zuckerberg, sixteen billion; Bill Gates, eleven billion; Steve Ballmer, ten billion; and Jim Walton, seven billion. Since these figures are based solely on publicly available information, they should be regarded as illustrative rather than as hard estimates. But they do make the point that the new tax would be heavily concentrated on the folks at the very, very top of the income distribution. Since they are the ones who have benefited the most from the new Gilded Age, and from the current tax system, this seems eminently fair.