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Understanding Biden's proposal to tax billionaires' unrealized gains47:28
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WASHINGTON, DC - SEPTEMBER 16: U.S President Joe Biden speaks during an event in the East Room of the White House September 16, 2021 in Washington, DC. Biden spoke about the U.S. economy, taxes and the middle class during the event. (Win McNamee/Getty Images)
WASHINGTON, DC - SEPTEMBER 16: U.S President Joe Biden speaks during an event in the East Room of the White House September 16, 2021 in Washington, DC. Biden spoke about the U.S. economy, taxes and the middle class during the event. (Win McNamee/Getty Images)

According to the White House, billionaires in America pay income tax at a rate that’s just half that of the average worker. Some billionaires pay no tax at all.

So, President Biden is proposing taxing the unrealized gains of the richest Americans — taxing assets the wealthy haven't yet cashed out on.

It's a big idea that's getting even bigger pushback.

"If there's no sale, there's no cash to pay the tax typically," says Steve Rosenthal, senior fellow in the Urban-Brookings Tax Policy Center at the Urban Institute.

Except that sometimes, the wealthy can borrow against those assets and get even wealthier.

"There's no sales tax at the federal level for the billionaires who spend a lot of money on yachts and mansions. We only collect taxes on income," Rosenthal says. "And so, the question then is what is income? And should unrealized gains be treated as income?"

Today, On Point: Wealth, taxation, and the Biden administration targeting unrealized gains.

Guests

Steve Rosenthal, senior fellow in the Urban-Brookings Tax Policy Center at the Urban Institute. (@stevertax)

Jesse Eisinger, senior editor and reporter at ProPublica. (@eisingerj)

Alex Hendrie, tax policy director at Americans for Tax Reform.

Jack Beatty, On Point news analyst. (@JackBeattyNPR)

Also Featured

Morris Pearl, chairman of the Patriotic Millionaires. Former managing director at BlackRock, one of the largest investment firms in the world. (@morris_pearl)

Related Reading

Tax Policy Center: "Biden’s New Taxes for Billionaires: One Is Hard, One Is Easy" — "This week, President Biden proposed two new taxes on the very rich. A minimum income tax that Biden calls a billionaire tax but would in reality apply to households with a net worth of $100 million or more. And a separate tax at death on gains from appreciated assets, even if the assets are not sold."

Highlights From The Show's Open

CHAKRABARTI: Morris Pearl is a very rich man.

PEARL: I have far more money than I need.

CHAKRABARTI: He lives in a Manhattan Park Avenue apartment. And he puts his wealth in the low eight figures so, you know, tens of millions of dollars.

PEARL: You know, sometimes when I've been traveling instead of even going first class and regular airplanes. I've just chartered planes to bring just me wherever I want to go.

CHAKRABARTI: Morris Pearl was once a managing director at BlackRock, the largest asset manager in the world. And just as an aside, in December 2021, BlackRock managed a staggering 10 trillion dollars — that's trillion with a "T" — of other people's money. Now, as for his own money, Pearl had made enough so that he retired at age 54. So these days, as a retiree with no W-2 generating job, he's got very little income, meaning under the U.S. tax code, he pays very little in taxes.

PEARL: I actually pay a far lower tax rate than, you know, people like working journalists, and I could reduce even further if I wanted to or needed to.

CHAKRABARTI: Oh, Morris, the shade. OK, but never mind that. We are here to learn. And if Moore's pearls assets are tied up mostly in stock, then where does he get the cash to live? You know, tip the doorman and stuff. Pretty simple, he borrows. Not like the "go to the bank and fill out the paperwork and hope and pray for a reasonably rated loan" kind of borrow. Morris Pearl borrows money against the value of his stocks.

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PEARL: I can simply call my broker, tell the broker I'd like to withdraw some money from my account, and they'll send it to me. And then, yeah, my account will have a debit balance, negative cash, and they'll charge interest on that. But if I have enough value, my stock in my stock account, that interest can just pile up, and I can withdraw more money every year and never have to sell any stock, never have any income, never have any income tax, and never pay a penny of taxes for the rest of my life.

And that's the secret of being rich is simply not paying taxes. There's nothing hidden, and there's nothing secret. There's nothing in obscure offshore islands. You know, there's no high paid lawyers or accounts involved. You're not breaking any laws. You're not doing anything illegal. It's all right out there in the open.

CHAKRABARTI: Here is a system that's working exactly as it was designed to. In fact, it's working so well back in the spring of 2020, when more than 20 million Americans lost their jobs in just two months due to the pandemic. Morris Pearl says for him, it basically started raining money.

PEARL: Right after the coronavirus lockdown started, just over two years ago, I borrowed significant amount of money to invest after that crash in 2020 and then following that, from, you know, the spring of 2020 until late 2021 was, you know, the best years the stock market's ever had. And I made a huge amount of money in those years — still not paying any taxes because I didn't sell the investments. But I'm more wealthy now than I was before the pandemic started by a significant amount.

CHAKRABARTI:  Now, oh boy, listeners, this may be my favorite bit of sound we have played so far this year because Morris and I honestly, I'm really grateful to him for this. Morris is just so clear about it. I love this. So, so guys, can we do this? Let's let's play it again.

PEARL: Right after the coronavirus lockdown started, just over two years ago, I borrowed significant amount of money to invest after that crash in 2020 and then following that, from, you know, the spring of 2020 until late 2021 was, you know, the best years the stock market's ever had. And I made a huge amount of money in those years — still not paying any taxes because I didn't sell the investments. But I'm more wealthy now than I was before the pandemic started by a significant amount.

When my stock goes up, that's money I can spend. That's money I can give to my kids. That's money I can do anything with. As long as I don't actually sell the stock, I don't actually pay any taxes. So any normal definition of "have," I have lots of money, except by the internal revenue definition of "have," I don't have any money. And that's why I don't have to pay any taxes or much taxes anyway.

CHAKRABARTI: Morris Pearl is so frank about his fortunes because he's the chairman of the Patriotic Millionaires, a group of wealthy Americans who actually want to change the system, so they have to pay more taxes.

In fact, Pearl supports a recent idea tucked into the Biden administration's budget proposal. It would tax the unrealized gains — unrealized gains — of the wealthiest Americans that increase value. Morris talks about that he can borrow against to make even more money, which is now basically low tax or tax free. So remember, though, Morris Pearls is a tens of millions of dollars kind of guy, so he wouldn't even fall under the Biden proposal. He's not rich enough.

In the great game of American wealth generation, Morris Pearl is just on the 10 yard line, and President Biden is aiming for the American celebrating in the end zone — folks with more than $100 million in assets. That's the top 1/100th of 1 percent of this country — or some 20,000 households out of more than 100 million households in the United States.

But to be honest, Biden's idea is pretty much dead in the water already. West Virginia Democratic Senator Joe Manchin has said, "You can't tax something that's not earned." Nevertheless, we're going to talk about it anyway and why it's likely not to pass because it's a great window into understanding how money works for some and doesn't work for others right now.

This program aired on April 13, 2022.

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