Senate Democrats released the details of a proposed levy on billionaires, a new and logistically risky approach to taxation that lawmakers hope will help fund President Joe Biden’s social spending aimed at low- and middle-income Americans.
The plan, sponsored by Senate Finance Committee Chairman Ron Wyden, D-Ore., is the result of weeks of negotiations among Democrats about how to find ways to raise taxes on the wealthy that nearly every member of the party can support. Wyden is betting that fellow lawmakers — and voters — will broadly back a plan that would shift more of the tax burden to the very wealthiest.
Even if the plan does pass, collecting the several hundred billion dollars that Wyden’s office says it will raise depends on withstanding likely court challenges and loophole-seeking by those in the IRS’s sights.
The idea gained momentum over the past week as a top alternative to fund a nearly $2 trillion plan to carry Biden’s economic agenda, after Arizona Sen. Kyrsten Sinema told her colleagues that she couldn’t support the more straightforward approach of raising tax rates on top earners and corporations, effectively sinking that cornerstone of Biden’s agenda.
“There are two tax codes in America. The first is mandatory for workers who pay taxes out of every paycheck. The second is voluntary for billionaires who defer paying taxes for years, if not indefinitely,” Wyden said in a statement. “Two tax codes allow billionaires to use largely untaxed income from wealth to build more wealth.”
The tax would apply to taxpayers who for three consecutive years have had assets worth at least $1 billion or have earned at least $100 million three years in a row. These thresholds mean about 700 people would be affected, according to a summary of the plan.
The proposal would require the richest Americans to pay taxes annually on the gain of the publicly traded assets, such as stocks and bonds. Non-tradable assets like real estate or closely-held businesses, which are harder for the IRS to value, wouldn’t be taxed until they’re sold, though they would have to pay an additional fee, called a deferral recapture amount, akin to an interest charge.
Most asset gains in the plan would be subject each year to the long-term capital gains rate, which is 23.8% currently. For illiquid assets that would also be subject to the additional recapture amount, the total rate would not be higher than 49%, according to a detailed outline of the legislation.
Wyden has worked for several years to find ways to collect annual taxes on the accrued fortunes of the ultra rich. The plan would upend longstanding tax-code principles that allow taxpayers to defer paying capital gains levies on their assets until they sell, an approach that has been gaining popularity among Democrats looking to address worsening wealth inequality.
The 50-50 partisan split in the Senate means Democrats must stay unified to pass the Biden tax-and-spending plan using a budget vehicle called reconciliation, with Vice President Kamala Harris as tiebreaker.