With their latest tax proposal, Democrats are going after an elusive target: U.S. billionaires, and their growing piles of untaxed investment gains.
More than $5 trillion is held by Americans worth at least $1 billion, according to the Bloomberg Billionaires Index. This exclusive group — more than 800 U.S. billionaires are now tracked by the index — has more than doubled its collective net worth in the last five years.
Yet as the wealth of America's billionaires soared, their tax bill didn't rise by the same extent. Under the rules, investment returns are only taxed when assets are sold, and the wealthy have the flexibility to only rarely sell, if ever.
For Democrats, that's a problem that requires a creative — some say outlandish — solution. Specifically, a "billionaire's tax," which would be an unprecedented annual levy on the investment gains of America's richest.
Some billionaires are outraged by the idea. "We should not be attacking wealthy people," hedge fund manager Leon Cooperman said. "Are we a capitalist nation or are we a socialist nation?"
"Eventually, they run out of other people's money and then they come for you," Elon Musk, the world's richest person, tweeted Monday evening. Musk's fortune has grown by $119 billion since the start of the year.
An analysis last month by White House economists argued the wealthiest Americans are under-taxed when you take into account a broader definition of income that goes beyond the amounts reported to the Internal Revenue Service each year and includes unrealized gains.
The Council of Economic Advisers economists estimated the 400 richest families paid a rate of 8.2% on $1.8 trillion in income from 2010 to 2018.
Advocates of the proposal, which is being championed by Senate Finance Chair Ron Wyden of Oregon, say it would combat inequality by hiking the effective rate on billionaires, ensuring that the gains of the very wealthy are taxed more like the salaries of middle-class Americans.
Under current rules, the ultrarich can entirely avoid income taxes by holding assets until they die. If they need money — and many have far more than they could ever spend in a lifetime — they can borrow against their assets, a tax-avoidance strategy known as "buy, borrow, and die."
"Those three things get them out of paying taxes," Wyden said earlier this month. "Nurses and firefighters pay taxes every year, and under my plan, billionaires will, too."
Kyrsten Sinema, Leon Cooperman
The proposed tax wasn't Democrats' first choice, but it has gotten attention from policymakers in recent days after Senator Kyrsten Sinema, a moderate Democrat from Arizona, reportedly threw cold water on more traditional ideas to raise revenue, including an increase of the corporate tax rate.
In a CNN interview on Sunday, Treasury Secretary Janet Yellen took pains to distinguish a billionaire's tax — "a tax on unrealized capital gains of exceptionally wealthy individuals" — from a wealth tax, an idea for an annual levy on the fortunes of the wealthy that, as a candidate, Biden opposed.
Cooperman, 78, called the proposal "stupid," saying it turns the "tax structure upside-down," and fans the flames of class warfare. He said he supports an end to tax loopholes like the one for carried interest, which allows some private equity managers and venture capitalists to pay lower rates on one of their main forms of compensation.
Cooperman is worth $2.5 billion, according to the Bloomberg Billionaires Index, though he said that number is too low without elaborating.
Ultrarich Americans are currently under no obligation to disclose their net worth to anyone, including the IRS. That makes it difficult to gauge just how much a billionaire's tax would raise.
House Speaker Nancy Pelosi told CNN on Sunday that the proposal was still being drafted and was expected to raise $200 billion to $250 billion in revenue over 10 years. Estimates based on the Bloomberg rich list suggest the tax could raise far more than that, particularly if the wealth of the top 0.001% continues to surge.
The Bloomberg index estimates that U.S. billionaires have increased their total net worth by around $1.2 trillion, or 29%, in the last 12 months alone. The vast majority of that is in the form of unrealized gains.
