Democrats released details of their plan to impose a tax on the unrealized capital gains of a few hundred of the wealthiest people.
The legislation, led by Senate Finance Chairman Ron Wyden, targets those with $1 billion in wealth or people making at least $100 million in income for three consecutive years. The plan would start next year for those with a net worth of over $1 billion and apply to 2019, 2020, and 2021 for those making $100 million each of those years. It is meant to help pay for the massive infrastructure and social spending bill that Democrats and President Joe Biden are trying to pass.
“The Billionaires Income Tax would ensure billionaires pay tax every year, just like working Americans,” said Wyden, an Oregon Democrat, on Wednesday. “No working person in America thinks it’s right that they pay their taxes and billionaires don’t.”
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The plan would capture revenue from about 700 people, including many of the country’s wealthiest and most influential billionaires, such as Tesla CEO Elon Musk, Amazon founder Jeff Bezos, and Facebook founder Mark Zuckerberg.
The proposal differs from the current tax regime, as gains would be taxed even if they are not realized. Today, billionaires whose investments grow in value are taxed on those increases, known as capital gains, when those assets sell. The new tax would apply to tradeable assets, such as stocks.
According to Wyden’s plan, billionaires such as Musk, Bezos, and Zuckerberg would face steep tax bills early on in the new tax regime, accounting for years of appreciation. They would be taxed at a long-term capital gains rate of 23.8% on how much their stock has appreciated, leading to a windfall of revenue for the federal government.
For example, Tesla stock has grown from less than $40 five years ago to more than $1,000 now. Musk would be taxed on the amount of that increase. Musk, worth more than $250 billion, would have to foot about a $50 billion tax bill, according to Gabriel Zucman, an economist who has advised Democratic Sen. Elizabeth Warren of Massachusetts on wealth taxes. Bezos would be shackled with a $44 billion tax bill.
The combined initial tax of the 10 wealthiest billionaires would net some $275 billion. The billionaires would be allowed five years to pay the new taxes levied.
While the tax would only apply to tradeable assets, the new billionaire income tax would also target illiquid assets. Those assets, such as real estate, art, or stakes in privately held businesses, would be taxed when they are sold and an interest-like fee would be applied.
Major shareholders can also pick up to $1 billion in stock of a single company to hold as a nontradeable asset in order to retain a controlling interest in the business.
In the case of an unrealized loss, those would be carried forward to offset future gains or backward up to three years to claim refunds and offset past gains.
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The proposal still doesn’t have official numbers on how much revenue it will capture, although House Speaker Nancy Pelosi has pegged the figure at between $200 billion and $250 billion.
The plan has been years in the making for Wyden, who has been a vocal supporter of mark-to-market taxation. It also represents a Hail Mary from Democrats who need some form of revenue-raising that will not isolate key centrist swing votes.
