News: Billionaire Tax Proposed to Pay for Climate Bill
Biden supports billionaire tax to fund infrastructure and climate protection.
Contributing Writer at Tally
November 5, 2021
Democrats are putting the finishing touches on a $1.5 trillion social safety net and climate change bill. One sticking point is funding.
Just last week, the Democrats pieced together a tax bill that would foot a portion of the new bill. The so-called “billionaires tax” would tighten tax laws around people with massive amounts of assets or who earn super-high incomes.
Let’s explore what's in the billionaire tax plan, who it impacts and how it will work.
Who does the billionaire tax affect?
Since it’s dubbed the “billionaire tax,” it’s easy to determine who this proposed tax law affects. However, there’s a more specific guideline than just billionaires.
The tax would impact only those with $1 billion in assets or who earned more than $100 million annually for three years straight. This would impact approximately 700 people nationwide.
What would the tax be on?
Initially, the billionaire tax would place a 23.8% capital gains tax on all value increases tied to billionaires’ tradable assets. This would include stocks, bonds and cash. It would be based on the asset’s original price.
The could mean a huge initial tax payment for people like Jeff Bezos, Mark Zuckerberg and Elon Musk, who all own massive amounts of company stock previously worth $0. The government will give these billionaires five years to pay off these tax debts.
After the initial tax, the same high earners will owe an annual capital gains tax based on the annual value increases of their tradable assets.
Will the proposed law close tax loopholes?
One way for those at the very top to legally minimize their tax burden is to pay themselves low salaries but borrow from their stocks and other assets to fund their lifestyles. Borrowing from the assets means they don’t need to liquidate them, which means there’s no capital gains tax.
To keep people from avoiding the new tax by shifting from tradable assets to non-tradable assets, such as real estate or businesses, Democrats have proposed an interest charge equal to the federal short-term interest rate plus one percentage point to counter it. Today, this interest charge would be 1.22% (0.22% + 1%).
The IRS would levy this interest charge on the asset’s value gain in the last year.
There will be additional provisions to prevent billionaires from stashing assets in pass-through companies or giving them to family members to avoid taxes. Effectively, any gift or bequest is subject to the interest charge unless it goes to a spouse.
Will the law pass?
It remains to be seen if the billionaire tax will pass, as it faces resistance from members of Congress on both sides of the aisle. But there is a possibility this law could pass with some revisions.