Tech billionaires in the crosshairs of new tax proposals
America’s richest tech executives and their companies are in the crosshairs of a new effort by Democrats to pay for the party’s ambitious social spending plans.
While the new billionaires tax and corporate tax minimum proposals are not specifically targeted toward tech, the industry would be among the hardest hit.
Big Tech celebrities like Amazon’s Jeff Bezos , Facebook’s Mark Zuckerberg and Tesla’s Elon Musk — as well as the companies they own — would see their tax bills skyrocket if the new tax comes to fruition.
It is unclear if the billionaires tax will become a reality, especially after Sen. Joe Manchin (D-W.Va.) expressed discomfort with the proposal Wednesday.
However, just getting a proposal targeting billionaires on the table is a clear sign that Washington is zeroing in on them as a way to fill the government’s coffers — and could be getting serious about making the tax system more equal.
The so-called billionaires tax is the first part of the framework and would require individuals with more than $1 billion in assets or $100 million in income for three years in a row pay taxes on unrealized gains — essentially an increase in value of an asset that an individual has not yet sold.
That includes tradable assets like stocks or nontradable assets like business interests or real estate. The tradable assets would be taxed at the existing capital gains rate, likely upward of 20 percent for almost all qualifying individuals, while the nontradable ones would have an additional tax added on sale.
The aforementioned tech CEOs — some of the most visible faces of the astronomical growth some companies enjoyed during a pandemic that threw millions into economic instability — would be some of the primary targets of the new tax.
Musk, for example, made close to $36 billion Monday on the back of Tesla’s stock spiking. Under the billionaires tax proposal, the world’s richest man would pay close to $8.5 billion on those gains, according to Niko Lusiani, director of corporate power at the liberal Roosevelt Institute.
“That’s in one day of earnings and itself would pay for the child tax credit for the entire year,” he told The Hill, referring to the White House’s proposal to give families thousands of dollars in tax credits for each child they have.
Lists of the most valuable people in America are littered with tech executives. Musk is worth $287 billion, according to Bloomberg’s Billionaire Index, while Bezos is not far behind, at $196 billion. Zuckerberg, Microsoft’s Bill Gates, Google co-founders Larry Page and Sergey Brin and Oracle’s Larry Ellison all have net worths more than $100 billion. A whopping eight out of the top 10 most valuable people on Bloomberg’s list made their riches through tech.
Almost all of that staggering wealth is tied up in stocks, shares of which aren’t taxed unless they are sold under the current tax framework. That allows billionaires to pay low true tax rates. Musk, according to leaked tax records obtained by ProPublica, paid $455 million in taxes between 2014 and 2018, a period where his wealth grew by $13.9 billion.
Critics have argued that it is unfair to tax gains that have not been realized yet. But Lusiani noted the ultra-wealthy can still take loans out against those assets without paying taxes.
There is also a potentially damaging incentive for these billionaires to realize as few gains as possible, ultimately not reinvesting their immense wealth back into the economy.
“Jeff Bezos, Elon Musk — these people can arrange their affairs so that almost all their income comes in the form of unrealized capital gains,” said Steve Wamhoff, director of federal tax policy at the Institute on Taxation and Economic Policy (ITEP). “They realize as little as possible so that most of it goes untaxed.”
The second plank of the payment framework would set a minimum corporate tax rate of 15 percent for companies that report over $1 billion in profits. The corporate tax rate is currently set at 21 percent, but companies have been able to utilize a combination of loopholes and deductions to limit their tax liability. Again, this proposal would hit many major tech companies hard.
Amazon pulled in $44.7 billion in pretax income between 2018 and 2020 but paid only $1.9 billion in federal income taxes, an effective tax rate of just 4.3 percent.
Google famously avoided paying the American corporate tax rate by moving profits through a network of affiliates in Ireland, the Netherlands and Bermuda. The company said it would stop using the process last year, but international profit-shifting still allows companies to dodge payments whether they be in the U.S. or abroad.
A report released by Fair Tax Mark estimates Amazon, Apple, Facebook, Google, Microsoft and Netflix together avoided $155.3 billion in taxes between 2010 and 2019 by, among other things, shifting profits abroad.
The fact that the corporate tax minimum proposal is “quite closely aligned” with the global tax minimum proposed by the Organisation for Economic Co-operation and Development could help address that loophole, according to Josh Bivens, research director at the Economic Policy Institute.
“If [the minimums] work, they’re going to collect a lot of money from those companies,” he told The Hill.
It’s not just the biggest name tech companies that would be hit by the proposal either. Salesforce avoided all federal income taxes on $2.6 billion of U.S. income in 2020, according to the ITEP. Under the new proposed minimum, the software firm would have paid $390 million.
Musk has expressed opposition to the billionaires tax, but the other CEOs have yet to comment on either tax proposal.
Even if these particular proposals to fund the government never come to fruition, the fact that they’re being considered at all shows momentum for increasing taxes on the wealthiest Americans and illustrates how much public support has turned against tech executives in recent years.
“We’ve seen billionaires with just runaway wealth,” Lusiani said, noting that the percent of the U.S.’s GDP held by billionaires has skyrocketed from 9 percent in 2010 to 18 percent now. “I’m not surprised that politicians are listening to their constituents and saying, ‘hey, it’s time we reverse these really dangerous and economically inefficient trends.’ ”