Senate Democrats have unveiled a plan to tax the gains billionaires make on the assets they own as a way to help pay for President Biden's social spending plan.
Democrats say the billionaire tax alone could raise hundreds of billions of dollars to help offset the cost of the final bill, which could end up around $1.5 trillion. It is part of a broader tax framework that also includes a new minimum tax on large corporations.
Senate Finance Committee Chair Ron Wyden, D-Ore., called the proposal a way to consistently tax billionaires who typically avoid paying annual income taxes.
"There are two tax codes in America," Wyden said in a statement. "The first is mandatory for workers who pay taxes out of every paycheck. The second is voluntary for billionaires who defer paying taxes for years, if not indefinitely."
The plan comes as lawmakers are scrambling to finalize the legislation this week. Biden and top congressional Democrats say they need to reach a deal on a framework and also move forward on a stalled $1 trillion bipartisan infrastructure bill.
Democrats have been arguing for the past several months on nearly every detail of the party-line social spending proposal, including its total cost. Leaders recently backed down from plans to spend as much as $3.5 trillion and are now focused on a far narrower bill with narrower tax provisions to help pay for it.
How the billionaire tax would work
The tax proposal would apply to just about 700 taxpayers, Democrats say — people who earn more than $100 million per year or who have more than $1 billion in assets for three straight years. It would require them to give the IRS a detailed account of how much the assets they own gained or lost each year, a process called mark to market.
Most of the gains on tradeable assets like stocks would be taxed at the existing capital gains rate, which is currently 20% for individuals earning over $445,850.
The tax applies differently for more complicated assets, like real estate or business interests, known as non-tradeable assets. Those would only be taxed once when the asset is sold and would include an additional fee similar to an interest payment.
The legislation also has details that would aim to prevent billionaires from trying to avoid the tax by moving money to different private companies or trusts, or by just giving money away as a gift.
Democrats say they expect the bill could raise hundreds of billions of dollars, but they have not yet received an official estimate from the nonpartisan scorekeepers in Congress.
Some House members are skeptical
The billionaire tax is one of the more controversial tax elements in the evolving spending package. Some House members in particular have expressed skepticism about how it would be administered.
House Ways and Means Committee Chair Richard Neal, D-Mass., told reporters on Tuesday that he has repeatedly expressed concerns about the plan.
The billionaire tax was released shortly after Wyden and other Democrats introduced a proposal to impose a 15% minimum tax on roughly 200 companies with more than $1 billion in profits.
The plan would not change the top corporate tax rate, as Biden had previously proposed. Instead, the measure would go after companies that have previously avoided paying any tax at all.
Sen. Elizabeth Warren, D-Mass., one of the sponsors of the plan, said it is a way to make that avoidance harder.
"Giant corporations have been exploiting tax loopholes for too long," Warren said. "It's about time they pay their fair share to help run this country, just like everyone else."