Democrats have recently abandoned their plan to tax billionaires in favor of taxing multimillionaires to fund their $1.75 trillion climate and social spending agenda. The Washington Examiner reports the Democrats’ plan to tax billionaires 23.8% on unrealized capital gains would have affected approximately 700 people and targeted the ultra-untaxed rich’s money rather than income. However, they have scrapped the plan in favor of a bigger income surtax that would impact tens of thousands of people.
The White House suggested a 5% surtax on income over $10 million, with an extra 3% surtax on people earning more than $25 million per year. According to the administration, the proposal also aims to remove “loopholes” that allow some rich people to avoid paying a 3.8% Medicare surtax on their wages.
Senior policy analyst at the Tax Foundation Garrett Watson told the Examiner, “It’s definitely a broader group of folks that will be subject to these tax changes” and that the billionaire plan would only have affected a few hundred individuals. At the same time, the millionaire proposal targets approximately 25,000 people.
The change is a significant shift from Senator Ron Wyden of Oregon’s proposal for a billionaire tax.
That tax would have brought in huge sums of money from people like Tesla CEO Elon Musk and Amazon CEO Jeff Bezos, who have built substantial personal fortunes.
However, under the current idea, they would pay far less since, while they are worth billions of dollars, their fortune is generated from illiquid assets such as art and real estate rather than massive yearly revenue streams.
While billionaires like Bezos have most of their money tied up, the surtax on individuals earning between $10 and $25 million would have a significantly larger proportional impact on people like entertainers and athletes who get much of their money from gross income rather than investment returns.
NBA superstar LeBron James is set to earn $95.4 million this year, with $64 million coming from sponsorships, memorabilia, and other partnerships. In calculating his tax burden, the money would be added to his NBA salary.
“For the surtax, it will actually be applied on higher earners’ AGI, so it’s before they deduct all their itemized deductions, all of their charitable contributions, SALT deductions, medical deductions — any other itemized deduction, those effectively will not count when you’re looking at this tax.”
The billionaire tax would provide the U.S. government with a considerable windfall the first year it is implemented in terms of income.
The greatest unknown when taxing billionaires’ unrealized profits is how the market will perform in the coming decade. If the economy enters a recession and stock prices fall, billionaires may record losses, making the logistics of taxing unrealized gains extremely complicated.
Biden also wanted to increase the corporate tax rate from 21% to 28% and the top marginal tax rate on people earning more than $400,000 per year from 37% to 39.6%. However, the most recent incarnation of the framework’s revenue-raising initiatives differs significantly from what the Biden administration first envisioned.
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