President Biden to unveil new tax on billionaires in budget

Biden has long favored higher taxes on the wealthiest Americans, but the White House has not introduced a tax plan specifically designed to hit billionaires until now. The plan comes amid signs that the administration’s negotiations with Sen. Joe Manchin III (DW.Va.) over stalled White House economic proposal may be reviving. But all previous efforts to tax billionaires have failed amid major political head winds, and it is unclear if Manchin and Sen. Kyrsten Sinema (D-Ariz.) will go along with the plan.

Many billionaires can pay far lower tax rates than average Americans because the federal government does not tax the increase in the value of their stock holdings until those assets are sold. Billionaires are able to borrow against their accumulated gains without triggering taxes on capital gains, enabling huge accumulations of wealth to go virtually untaxed by the federal government.

The White House Office of Management and Budget and Council of Economic Advisers estimated this fall that 400 billionaire families paid an average federal tax rate of just over 8 percent of their income between 2010 and 2018. That rate is lower than the rate paid by millions of Americans.

The White House plan would mandate billionaires to pay a tax rate of at least 20 percent on their full income, or the combination of traditional forms of wage income and whatever they may have made in unrealized gains, such as higher stock prices.

Billionaires paying a rate below that will have to pay the difference between what they pay now and the 20 percent rate. Billionaires already paying more than 20 percent would not owe additional taxes. The taxes paid toward the minimum tax would count toward whatever billionaires owe once they have to pay ordinary capital gains taxes.

“The Billionaire Minimum Income Tax will ensure that the very wealthiest Americans pay a tax rate of at least 20 percent on their full income,” the White House document says. “This minimum tax would make sure that the wealthiest Americans no longer pay a tax rate lower than teachers and firefighters.”

White House officials estimate the tax would raise roughly $360 billion in new revenue over the next 10 years if enacted, according to the document. The proposal was developed by Biden aides at the Office of Management and Budget, the Treasury Department and the White House National Economic Council.

The White House is expected to release a budget Monday that includes increases in defense and nondefense spending, with a focus on mental health, child care, other social programs, and reducing the deficit, two other people familiar with the matter said. These people spoke on the condition of anonymity to reflect planning not yet made public.

Biden’s budget proposal will also cut the federal deficit by more than $1 trillion over the next decade, according to a White House document. News of the deficit reduction was first reported by the Associated Press.

The outcry over the low tax rates of the financial elite has emerged as a key flash point in American politics, particularly after liberal Democrats in the 2020 presidential election sought to tackle wealth inequality by targeting billionaires.

Tax experts have long debated how best to turn that aspiration into reality. Sen. Elizabeth Warren (D-Mass.) proposed a wealth tax during that campaign that would have levied an annual 2 percent tax on all assets in excess of $50 million. Senate Finance Chair Ron Wyden (D-Ore.) this fall unveiled a “billionaire income tax” that would have taxed on an annual basis the gains in value of stocks and other “unrealized assets.”

The White House approach represents yet another attempt to craft a billionaire tax that can be approved by Congress and administered effectively by the Internal Revenue Service. Wyden’s plan would have been assessed on an annual basis, whereas the White House gives wealthy households five years to be in compliance with the minimum 20 percent tax. The White House plan also creates an initial nine year period from enactment for households to pay previously unrealized income.

“Biden’s proposal really effectively addresses the practical implementation challenges we’ve seen in previous proposals to tax very high income households,” said Jason Furman, a senior economist in the Obama administration.

Still, some tax experts prefer Biden’s prior approach of taxing unrealized capital gains only once those gains are realized at death. Conservatives and other legal scholars have argued it is unclear if the Supreme Court will strike down any measure they view as a wealth tax.

“We still have questions of constitutionality: Can the IRS collect taxes if nothing has been sold based on the wealth, the property, of the taxpayers?” said Steve Rosenthal, a senior fellow at the Tax Policy Center, a nonpartisan think tank.

It also remains unclear if even the more nuanced approach to taxing billionaires will be approved by Democrats in Congress. House Speaker Nancy Pelosi (D-Calif.) was among the Democrats who in private objected to Wyden’s billionaire tax plan, suggesting it amounted to a publicity stunt. Manchin denounced the billionaire tax as divisive last fall, though he later told The White House he could support such a measure.

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