A “billionaire’s minimum income tax” is included in President Joe Biden’s budget proposal for fiscal year 2023 – part of the administration’s efforts to reduce the federal deficit over the next decade and fund new new expenses. The proposal “eliminates ineffective income protection for decades or generations,” the White House said.
At a news conference highlighting the budget on Monday, Biden said one-hundredth of 1% of Americans would be subject to the tax. “The billionaire minimum tax is fair and it brings in $360 billion that can be used to cut costs for families and reduce the deficit,” he said.
Whether Congress will approve is a major question as the administration outlines its hope to tax the nation’s highest earners.
Here’s how it would work:
HOW WOULD THE TAX APPLY?
The budget proposes that households worth more than $100 million pay at least 20% taxes on income and on “unrealized gains”, i.e. the increase in the value of an unsold investment. For many wealthy individuals, according to the administration, this “real income” is never taxed because it can be kept for decades and sometimes generations.
Biden’s proposal would allow wealthy households to spread some payments on unrealized earnings over nine years and then for five years on new income in the future. Spreading payments over several years is intended to smooth out year-to-year variations in investment income, while ensuring that the wealthiest end up paying a minimum tax rate of 20%. In effect, the billionaire’s minimum income tax installments are an advance payment of the tax obligations that these households will have to pay when they later realize their gains.
It is an extremely nuanced policy. The tax targets the ultra-rich. It’s about taxing realized gains on their wealth, but it’s real and unrealized income rather than just the underlying assets.
That’s why David Gamage, professor of tax law at Indiana University, says “it’s not a wealth tax, it’s income tax reform.” for a very long time, he said.
WHO WOULD SEE THE IMPACT?
About 700 billionaires would be affected by the tax proposal, according to the White House, estimating that those people increased their wealth in 2021 by $1 trillion, paying about 8% of their income and unrealized gains in taxes.
“A firefighter and a teacher pay more than double” the tax rate a billionaire pays, Biden said at Monday’s press conference.
Elon Musk, Bill Gates, Jeff Bezos, Warren Buffet and Michael Bloomberg are just a few well-known people who could see income from their holdings taxed under this proposal if it becomes law.
HOW MANY MONEY WILL HE RAISING?
According to the White House, $361 billion over 10 years. The budget proposal contains an additional $1.4 trillion in revenue increases, which would include a higher top tax rate of 39.6% for individuals and an increase in the corporate tax rate to 28%.
HOW DO VOTERS FEEL?
The subject of tax evasion has gained momentum in recent years. A ProPublica report last June explained how the wealthiest Americans can legally pay income taxes that are only a fraction of what middle-income Americans pay on their earnings. And a Pew Research Center study from last April says most Americans — about 59% — say they’re “very much” bothered that some businesses and wealthy individuals aren’t paying their fair share of taxes.
A 2017 Gallup poll indicates that just over six in 10 Americans say high-income earners pay too little tax.
IS CONGRESS LIKELY TO APPROVE THIS MEASURE?
Donald Williamson, professor of accounting and taxation at the American University in Washington, said: “A few years ago, I would have burst out laughing. Today, it is possible.”
The greatest likelihood is “reconciliation” – a budget process to pass tax legislation by a simple majority of Senate votes.
It will require the buy-in of West Virginia Sen. Joe Machin and Arizona Sen. Kyrsten Sinema, who have each opposed proposals to tax the ultra-rich in the past.
Steve Wamhoff, director of tax policy at the Institute on Tax and Economic Policy, said Democrats “have this vehicle for reconciliation that they can use to pass laws.”
“It’s a step towards a much fairer tax code.”
Associated Press writer Josh Boak contributed to this report.