US lawmakers on Wednesday unveiled a proposal to tax billionaires on unrealized financial gains.
The Democratic senators said the bill would help finance US President Joe Biden’s high-spending agenda, which includes plans to expand the social safety net and fight climate change.
What do we know so far about the proposal?
The proposed tax would target very wealthy people who, under current tax law, do not have to pay taxes on investments that have increased in value but have not been sold.
It specifically target the gains of those with more than $1 billion (€861 million) in assets or incomes of more than $100 million a year. The tax would apply to about 700 people.
It would impose the standard 23.8% tax rate for long-term capital gains on tradable assets such as stocks, even if they were unsold. Taxpayers could also take deductions for losses on assets.
The tax would also impose levies on billionaire ownership stakes in businesses incorporated as pass-through entities in trusts including real estate investment trusts, according to a statement seen by Reuters news agency.
The proposal was brought forward by Senate Finance Committee Chairman Ron Wyden.
“No senator wants to stand up and say, ‘Gee, I think it’s just fine for billionaires to pay little or no taxes for years on end,'” Wyden said as he introduced the bill.
Billionaire Elon Musk doesn’t approve
Tesla CEO Elon Musk — who recently overtook Amazon founder Jeff Bezos as the world’s richest person — earlier criticized the proposal in a post on his favorite platform Twitter.
“Eventually, they run out of other people’s money and then they come for you,” he wrote.
Musk is worth $278 billion (€239 billion) according to Forbes’ real time billionaires list, with a large portion of his wealth tied up in Tesla stock.
Fellow billionaire George Soros welcomed the plan however. A spokesperson for the investor and progressive activist said he was “supportive” of such a plan.
Aside from using complex international arrangements, billionaires are often able to avoid paying any substantial amount of tax by borrowing against their assets rather than selling them, resulting in just small interest payments to banks.
Why does the US government need more money?
The Biden administration needs to pay for its “Build Back Better” legislation and other spending promises.
There are two key pieces of legislation the Democrats need to fund — a social spending and climate change package worth up to $2 trillion, and a $1 trillion infrastructure bill.
Lawmakers have winced at the thought of financing extravagant spending through more debt, prompting a search for new revenue sources.
Biden also promised that no new taxes would hit those earning less than $400,000 a year, or $450,000 for couples.
The proposed billionaire tax would run in conjunction with a new internationally agreed corporate minimum tax, meant to help combat corporate tax avoidance.
Democrats say the billionaire tax could raise $200 billion in revenue over 10 years.
What do other Democrats think?
The proposal has faced stiff opposition from some Democrats in congress.
They favor more straightforward hikes in tax rates for companies and the wealthy.
Democratic Senator Joe Manchin, who holds a key vote for Biden, denounced the tax as divisive shortly after it was unveiled.
“I don’t like the connotation that we’re targeting different people,” Manchin told reporters, according to The New York Times. He said it would target people who have “contributed to society and create a lot of jobs and a lot of money and give a lot of philanthropic pursuits.”
“It’s time that we all pull together and grow together,” Manchin said.
Democratic Representative Richard Neal said raising rates on corporations and the wealthy would be easier to implement than the billionaire tax.
“I’ve been talking about this for years,” Democratic Senator Elizabeth Warren said, backing Wyden’s approach. “I’ve even made billionaires cry over this.”
Republicans, such as Senate Minority Leader Mitch McConnell, called the proposal “harebrained” and said it would face legal challenges.
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