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President Biden unveiled a budget proposal this week that includes a new wealth tax targeting the richest Americans and aimed at addressing wealth inequality. The latest Democratic proposal would affect households worth $100 million or more. Dan Primack, business editor at Axios, joins Lisa Desjardins to discuss.
President Biden unveiled his budget proposal earlier this week. It includes a new wealth tax targeting the richest Americans aimed at addressing wealth inequality.
Democrats continue to return to the debate over tax fairness.
Lisa Desjardins has a closer look.
Judy, as part of its budget, the Biden administration has been making the case for a kind of billionaire tax, including today in front of the Senate Budget Committee chaired by Senator Bernie Sanders, who has long advocated for increased taxes on the wealthy.
The latest Democratic proposal would affect households with a net worth of $100 million or more. Those Americans would pay a 20 percent minimum tax on income and assets together. Assets would include things like unsold stock, something that is not taxed this way now. Those affected could pay this tax over five years.
Dan Primack is a business editor at Axios, and he joins me now to go through this.
All right, Dan, help us understand this. For example, let's just say I have a wildly successful company, say, selling photos of my cat, and somehow I get $100 million in stock. How would this proposal work for me?
Dan Primack, Axios:
This proposal would work for you.
So, normally, what would happen is, you wouldn't pay any taxes on that $100 million in stock until you sold it and gotten actual cash in exchange for it, at which point you pay a tax on the profit. For example, if it was stock options, if you had to pay a few pennies per share, it would just be on the profit.
The way it would work now, though, is, you would be taxed at the value of that stock at year-and, so, probably $100 million. You would pay that now. And, in exchange, when you eventually did sell it, then you wouldn't have to pay the tax at that point, or at least you just wouldn't have to pay the difference.
This is a question about — to me, about a small group of people with a lot of money.
We know, for example, we have heard so many stories about billionaires like Jeff Bezos, also Elon Musk paying lower taxes than average Americans, a lot lower, for example. Can you help us understand, how large a group of people are we talking about that would be affected, and how much money could this potentially raise, this kind of idea?
It is a very small number. The White House estimates it's about one-tenth of 1 percent of American taxpayers.
And in terms of the amount of money, they're kind of saying about $350 billion over 10 years. So it's real money, but a very small number of people. And what's important to know about some of these folks is, they often get very low salaries, but get a lot of other sorts of compensation, including stock.
So the argument isn't that somebody like Bezos or Musk is paying a lower rate on their salary, which is what most people earn. It's that they are paying a lower percentage on their overall compensation, and most people's overall compensation isn't majority stock.
This is about how they have structured their wealth, basically, so they don't have to pay these taxes.
What does this do? Do you know, do we understand what this would do about disparity in this country, which we know has been growing for some time?
First, just to also note on the first part, that not only is it the way they're compensated. Often, folks with a lot of wealth can take out loans against their stock, and they can use that really as income, whereas they're not paying taxes on that stock.
As for income inequality, it won't do anything, per se. I mean, obviously, it would make a billionaire less rich, but they would still be extraordinarily rich. One thing it would do, that, again, is provide hundreds of millions of dollars over the next decade to the federal government.
What is the argument against this, especially from those who are wealthy? I have seen some people say that this could be a problem in terms of a disincentive to wealth.
I don't believe that's going to be a disincentive to wealth. There's always a reason to make more money. You will have more money. You just won't have quite as much as you had before.
The real argument against this is largely philosophical, which is, historically, in America, we have taxed income when it's been recognized, when you have actually gotten cash in your accounts. This would be a very different way of doing things. And then, for certain people — and this is a small number — there could be some serious complications.
For example, if you have that $100 million on December 31 in your cat company stock and you pay taxes today, what if in two years your company's gone broke or now that stock is only worth $10 million when you go to sell it? You have now paid a ton of taxes on something else. There are ways to deal with that, but it would be very complicated.
Right, if there's a giant economic downturn, for example.
Another thing about this, it's clearly creative. Democrats, Republicans, everyone agree this is sort of a creative way of getting at this idea. But my question to you is, is this constitutional? Can government tax this way?
That is a giant question.
The White House obviously thinks it is. The White House argument would be that the colloquial understanding of income, which is usually is tied to tax — or to cash, is not the same as the economic definition of income. For example, I think the White House would argue that health care benefits are a sort of income and other benefits are as well.
The bigger issue than constitutional is probably political, which is that Joe Manchin has already come out and said he does not think he is going to support this. Democrats and the White House need every Senate Democrat to vote yes.
I want to talk more about those political dynamics, because this is an idea that not that long ago was an outlier. Not many people, even Democrats, were talking about this.
It clearly has gained momentum. It has remained hovering over Congress. I wonder why you think that is. What are the political and maybe financial, economic, cultural dynamics that have meant this idea has hung around the Capitol this long?
You're right, first, kind of Bernie Sanders, then Elizabeth Warren. Senator Ron Wyden proposed something similar to this last fall.
Ultimately, because, politically, tax the rich is a really good message, because most people aren't rich, and tax the rich is good. And it is certainly true that the very wealthiest Americans do not pay as a percentage as much of their wealth or as much of their income as do ordinary Americans. For lack of a better term, they do have money to spare.
It's a good — it's a good political message, but it's also a really good political message to keep being able to use on the campaign trail when you don't think you really have a good chance of getting it passed.
Yes, I think I can say with certainty it is very unlikely that I or my cat will make $100 million.
But I'm curious, for the sake of those watching this issue from any side, what do you think the future is here? Do you have — I know you don't have a crystal ball, but where do you think this issue is headed? Is this something that you think will die out, or will this continue to be a part of conversation? And why?
This will continue to be a part of conversation because I don't believe this is going to get passed, again, with Manchin saying no, and then it would have to get to the courts.
This will continue to be an issue so long as we continue to have uber-wealthy in this country. And there's no particular reason to think that we won't continue to have that.
Dan Primack of Axios, a very important and interesting conversation.
Thank you so much for taking us through it.
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Lisa Desjardins is a correspondent for PBS NewsHour, where she covers news from the U.S. Capitol while also traveling across the country to report on how decisions in Washington affect people where they live and work.
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