WASHINGTON ― Democrats want to tax the richest people in America to help pay for new programs like paid leave, tax cuts for parents and health care for seniors and poor people.
But the idea is running into fierce resistance from Republican lawmakers who often represent the interests of the exceedingly wealthy on Capitol Hill.
A proposal from Sen. Ron Wyden (D-Ore.) targets investments, such as stocks, held by billionaires. Instead of the superrich being able to hold on to their investments and borrow against them, without ever having to pay a tax unless they sell, Wyden’s idea is to impose an annual tax based on how much the assets have increased in value.
Republicans want billionaires’ assets to be left alone because, they argue, the tax may not be easy to implement.
“On assets that are not public securities, how are you going to determine the market value?” Sen. Mitt Romney (R-Utah) told HuffPost. “We’re going to be in huge legal battles over what the value is of a ranch, of a painting, over a piece of jewelry.”
Wyden says he plans to release more details this week about his “Billionaires Income Tax,” which he said would only affect roughly 700 billionaires. He told HuffPost the tax would only apply to people who own more than $1 billion in assets or who earn more than $100 million annually for three consecutive years.
“It is being written so that when nurses and firefighters pay taxes with every paycheck, billionaires who have figured out how to not pay taxes because they don’t take a wage, they’re going to have to pay their fair share,” Wyden told reporters Monday.
The wealthiest 400 billionaires paid an effective tax rate of just 8.2% from 2010 through 2018, according to a September analysis by economists at the White House Council of Economic Advisers and the Office of Management and Budget.
The tax would be novel, since as it stands now, the federal government only taxes income. The wealthiest Americans pay much lower effective tax rates than everyone else thanks to lower rates for capital gains — the increased value of an investment when it’s sold — and the wealthiest families can avoid even those lower rates completely when the people who hold the assets bequeath them to their children after they die.
“If public reporting has it right, the Democrats are so desperate to raise taxes that they are now proposing to tax money the American people haven’t even made yet,” Senate Minority Leader Mitch McConnell (R-Ky.) lamented in a speech on Monday.
“Yes, you heard me right,” he went on. “So much for the quaint idea that you had to actually make money first before the IRS could tax it. Now Democrats want to tax money you haven’t even made yet.”
Democrats initially rejected higher capital gains taxes on inherited assets as part of the Build Back Better plan, but have returned to the idea of taxing unrealized capital gains because Sen. Kyrsten Sinema (D-Ariz.) has refused to support higher corporate or individual tax rates. Her opposition to rolling back some of the 2017 GOP tax cuts has denied her party a potential pot of revenue to help offset the cost of their human infrastructure bill, which has been whittled down from $3.5 trillion to roughly $1.75 trillion.
Republicans generally oppose higher taxes on anyone, but have focused their arguments against the Build Back Better tax plan on elements that might violate President Joe Biden’s pledge not to increase taxes on households earning less than $400,000 annually. Still, they’re not hesitating to dump on the billionaire tax.
“Why would we want to destroy investment in America and punish success in America?” House Minority Whip Steve Scalise (R-La.) told HuffPost. “We want to encourage more and more people to work hard to create more opportunities for everybody, and stop trying to find a way for government to go punish somebody if they meet some new definition of success.”
Some Democrats are also uneasy with the billionaire tax proposal. A few have argued it would be simpler and more efficient to raise individual and corporate rates, as they proposed in a House version of the bill.
Rep. Jim Himes (D-Conn.) told HuffPost he’s all for new taxes on unrealized capital gains, but that he favors ideas that have been around for longer, such as discontinuing the “step up in basis” that eliminates most tax liability when someone dies.
“There’s just so many simple things that apparently we can’t get consensus and the party to do, so we’re left with this idea that we’re going to tax unrealized gains,” Himes said. “Does that mean that when you have an unrealized gain in year one and you have an unrealized loss in year two, that the IRS is going to spend a lot of time making you whole? I mean, it just feels to me like not a lot of money, and very challenging to implement.”
Democrats are hoping to finalize a “framework” for an agreement this week before Biden leaves the country to attend the COP26 global climate conference in Scotland. A deal on climate provisions in the bill would give Biden something tangible to point to as evidence of the U.S. taking the growing threat of climate change seriously.