President Joe Biden’s fiscal year 2023 budget proposal includes a “Billionaire Minimum Income Tax,” as part of the administration’s aim to lower the federal deficit over the next decade while still funding new spending. The idea “eliminates the inefficient sheltering of income for decades or generations,” according to the White House.
On Monday, Biden indicated that one-hundredth of one percent of Americans would affect by the tax during a press conference presenting the budget. “The billionaire minimum tax is fair, and it raises $360 billion that can be used to lower costs for families and cut the deficit,” he said.
As the administration announces its plan to tax the nation’s richest earnings, the question of whether Congress will approve is a key concern.
Billionaire Minimum Income Tax
How would the tax apply?
The budget recommends that households with income exceeding $100 million pay at least 20% in taxes. It is on both income and “unrealized gains,” or the growth in the value of an unsold investment. The administration says, “true income” is never taxed for many wealthy individuals because it can be held onto for decades, if not generations.
In Biden’s proposal, wealthy households would be able to defer some payments on unrealized gains for nine years. Then. they can do it for five years on new income. Payments spread out over several years to smooth out yearly fluctuations in investment income. It is simultaneously still ensuring that the wealthiest pay a minimum tax rate of 20%. In effect, the contributions to the Billionaire Minimum Income Tax represent a prepayment of the tax responsibilities that these households would owe when they later realize their gains.
This is a policy with a lot of nuances. The tax aims at the ultra-rich. It’s taxing their wealth growth, but it’s actual and unrealized income rather than just the underlying assets.
“It’s not a wealth tax, it’s an income tax reform,” argues David Gamage, a tax law expert at Indiana University. He claims that “This is a minimum income tax that includes the true economic value” of income that can be held for a very long time.”
Who would face the impact?
According to the White House, the tax proposal will affect around 700 billionaires. They will have increased their wealth by $1 trillion by 2021; while paying roughly 8% of their income and unrealized gains in taxes.
During Monday’s news conference, Biden said that “a firefighter and a teacher pay more than double” the tax rate that a billionaire pays.
Elon Musk, Bill Gates, Jeff Bezos, Warren Buffet, and Michael Bloomberg are just a handful of the famous people whose earnings on their holdings may be taxed if this idea becomes law.
How much money would it raise?
$361 billion over ten years, according to the White House. The budget proposal includes $1.4 trillion in revenue raisers. Thereby, including a top tax rate of 39.6 percent for individuals and a corporate tax rate of 28 percent.
How do voters feel?
In recent years, the issue of tax evasion has become more prevalent. According to a report published by ProPublica in June, the wealthiest Americans can legally pay income taxes that are a quarter of what middle-income Americans pay. Pew Research Center poll from April suggests, the majority of Americans — 59 percent — are very concerned that some firms and rich individuals do not pay their fair share of taxes.
A Gallup study from 2017 says, significantly more than 6/10 of Americans believe the wealthy pay too little in taxes.
Will Congress approve this measure?
“A couple of years ago, I would’ve laughed out loud. Today it’s conceivable,” says Donald Williamson. He is an accounting and taxes professor at American University in Washington.
The best chance is to approve fiscal legislation through “reconciliation”. It is a budget process that requires only a simple majority of Senate votes to pass.
That will require support from West Virginia Senator Joe Machin and also Arizona Senator Kyrsten Sinema. Both of them have previously opposed ideas to tax the ultra-rich.
The Democrats “have this reconciliation vehicle that they can use to pass legislation,” according to Steve Wamhoff. He is the director of tax policy at the Institute on Taxation and Economic Policy.
“This is a step toward a much fairer tax code.”
