U.S. billionaire tax proposal seems to unite Democrats - but will it work?


WASHINGTON, Oct 26 (Reuters) - A first-of-its-kind proposal from Democratic lawmakers to tax U.S. billionaires on the assets they own is expected to face challenges from the super-rich, and be tough to implement, say tax experts and investors.

The proposal, set to be unveiled as soon as Tuesday, would require roughly 700 U.S. billionaires to pay taxes annually when their stocks and some other assets increase in value, according to people familiar with the matter.

Currently, such taxes are only due when the stocks are sold.

House of Representatives Speaker Nancy Pelosi says Democrats hope the plan would raise as much as $250 billion to help pay for expanding the social safety net and tackling climate change.

The provisions may be tough to implement even if they become law. Experts say some billionaires will shift their wealth away from assets that are easily tracked and taxed under the new rules to ones that are not. They also warn that a sharp market decline could give billionaires a new tax break.

"It's a stupid idea," said billionaire Leon Cooperman, an investor who warned such a law could cause "unnatural" economic reactions. "The progressives are out to lunch."

But Gabriel Zucman, a University of California at Berkeley economics professor whose research on the subject helped inspire Democratic tax proposals, said that "billionaires have lower taxes than the middle class" as a percentage of their income.

"It would be historic. It would be the most progressive tax ever," Zucman said.

Getting billionaires to pony up may be one of the ideas capable of uniting Democrats, who are trying to resolve other ideological disputes over what should be in their social spending package. The bill is a signature policy for President Joe Biden and is likely to be valued at $1.5 trillion or more over 10 years.

Biden backs taxing the wealthy and corporations more heavily and has privately supported the proposal focused on taxing billionaires, according to a person familiar with his thinking.

Democratic Senator Joe Manchin, a centrist with a virtual veto over Biden's agenda in the evenly divided Senate, said on Monday: "I'm open to any type of thing that makes people pay that's not paying now."


The proposal, if passed, will likely face an immediate challenge in court and by taxpayers eager to evade the rules, according to tax and legal experts.

"I could potentially see people trying to get out of easier-to-value assets," said Tim Laffey, a lawyer who heads tax policy and research at Rockefeller Capital Management, which manages money for wealthy families. "Obviously, everything that's publicly traded has an established value, so maybe we see a push into alternative investments."

He also said there could be legal challenges, such as contesting whether appreciated assets that have not been sold can be treated by the federal government as taxable income.

Republicans do not support Biden's social spending bill and will also likely oppose the billionaire tax.

"They are talking about rewiring the entire economy after a couple of days' discussions on the back of an envelope," said Senate Minority Leader Mitch McConnell, adding the "harebrained scheme" had not received "any meaningful study or scrutiny."

Under the plan, details of which are still being finalized, gains on stocks and other easily traded assets would be taxed only for U.S. taxpayers with over $1 billion in assets or $100 million in income for three consecutive years, according to people familiar with the matter.

The billionaires would pay capital gains rates on their gains that year rather than putting off the bill indefinitely by holding on to the assets. Losses would offset that liability. The capital gains tax for assets held over a year top out at 23.8% currently, less than the 37% maximum for regular income.

A new levy would also be placed on assets that do not trade as easily, like real estate or a stake in a business. In that case, billionaires would essentially pay a surcharge when they sell the asset.

Not all billionaires are opposed. George Soros, the investor and liberal activist, is "supportive," his spokesperson told Reuters on Monday.

A ProPublica report in June said Soros paid no federal income tax for three years in a row. Citing private Internal Revenue Service data, it said Inc's (AMZN.O) Jeff Bezos and Tesla Inc's (TSLA.O) Elon Musk had also been able to skirt all federal income tax liability in some years.

The new law would likely include a set of rules to ensure the wealthy comply, including giving the federal government the power to examine whether trusts, estates and other legal structures are being used to evade the tax.

Still, the proposal would put new pressure on the IRS, which enforces U.S. tax law and has been hollowed out by budget cuts and hobbled by obsolete technology.

Our Standards: The Thomson Reuters Trust Principles.

Comments / 23


If they actually want to do something that violates the 16th Amendment of the constitution that only allows Congress to tax income and force the wealthy to pay “ their share”… they should eliminate income tax and replace it with a national sales tax. Food, basic hygiene products could be tax free. Clothing under $50 tax free. Capture the tax revenue based on what the wealthy are spending on boats, designer clothes, private jets, luxury cars etc. Families who are struggling to pay for college or medical expenses, saving for retirement etc would be able to keep their money to cover their cost. Just throwing it out their as a thought.

John Phillips

Here is a scary thought. In the 1980s-the 90s-and 2000, the American Government offered Foreigners 5 years tax free to purchase or start up a Business. What they began doing was put a Store in the male's name for 5 years. Then they would sell it to a close family member, for just a few dollars so that the Tax Exemption will stay in place. They would continue to do this until the original Owner ran out of friends and family. Then, they would close that business, remodel it and change the name. The 5-year tax-free business starts all over. I know some people from India, Pakistan and, other middle eastern Countries that did that. After the Husband, Wife, and Son used up their tax-free status, they remodeled, change the name, and started over. They are on their 4th name change and have several Convenience Stores. A man from Pakistan bought a Motel and is doing the same thing. He owns 4 Hotels. A natural US citizen is not allowed to do this. Our liberal Government will not help White people

magic one

This is a tough one. There are multiple cases of billionaires not paying any taxes, due to how they play the hide the money shell game with offshore accounts. An anology of paying taxes on stock profits might be like you purchase your home, the value doubles over time. During that time you have been paying original property tax based upon purchase price then paying more each time it's value goes up. Then you will pay taxes on the increased value at the time of resale if you don't reinvested within prescribed time frame. So this paying of taxes at each increase of profit is not something new.


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