Biden is reportedly getting even more serious about taxing the wealthy

joe biden
President Joe Biden participates in a conference phone call with governors affected by a snowstorm in the Midwest and southwest Tuesday, Feb. 16, 2021, in the Oval Office of the White House.

  • Bloomberg reports that Biden is getting more serious about some taxes targeting the rich.
  • The increases come amidst growing economic disparity throughout the pandemic.
  • Capital gains, larger corporations, and high-earners could feel the impact of the hikes under talks.
  • See more stories on Insider’s business page.

President Joe Biden is getting even more serious about raising taxes on the wealthy, according to a new Bloomberg report. It likely won’t look like a “wealth tax,” though.

Biden hasn’t said he’d enact a wealth tax like the one proposed by Sen. Elizabeth Warren, and instead he’s reportedly considering alterations to the tax code that would increase taxes on high earners without creating a brand-new tax that targets wealth.

Biden has already said that Americans making over $400,000 will see a “small to significant” tax increase. High-earning Americans could see their income taxes increase to 39%.

Now, the deputy director of the National Economic Council, David Kamin has told Bloomberg what other tax changes are currently under discussion. One is eliminating the stepped-up basis, something that Treasury Secretary Janet Yellen has already been eyeing.

That measure has to do with inheritance, and how inherited assets are valued for tax purposes. Current law lets assets that have gained value since they were originally acquired be valued at their market price and only taxed on increase from the value at the time of inheritance – not any of the prior gains.

Also under consideration, according to Bloomberg, is increasing the tax rate on capital gains, taxing them at the same rate as the income tax.

Capital gains – profits made from selling assets like stocks – are taxed differently from income once the owner has had the asset for over a year. The rates for those gains are generally lower than the income tax. Throughout his presidency, Donald Trump mostly weighed even more cuts to capital-gains tax rates. Biden’s proposal could bring the rates up to 39% for those making the most money, a far cry from rates that currently come to around 20%. Also, wealthier Americans are exactly the type of people likelier to own assets that can be sold for a capital gain.

Finally, Biden wants to raise taxes on business.

Yellen is working toward creating a global minimum corporate tax rate, under the idea that if the US can convince most other countries to set the corporate tax rate at a certain level, Biden can raise corporate taxes without fear of multinationals leaving the country.

Growing disparity has underscored the push for a tax increase

According to Bloomberg, the “administration’s intentions” have been reinforced by the K-shaped recovery taking place throughout the pandemic in which high-income Americans have seen their jobs and wages grow, while low-income Americans experience the opposite. Biden himself used the term during a 2020 presidential debate.

Throughout the pandemic, low-wage and minority workers have been hit the hardest; those low-wage jobs may also not return post-pandemic, requiring workers to learn new skills and move into different fields. On the whole, workers globally have lost $3.7 trillion in wages during the pandemic, while the world’s billionaires have added $3.9 trillion to their cumulative net worths. In the US alone, billionaires added $1.3 trillion to their net worths during the pandemic.

Biden’s $1.9 trillion stimulus did offer some relief – and increased consumer confidence – for low-income Americans. That package was passed through reconciliation, which seems to be the most likely route forward for any Democratic tax hikes.

Tax increases – and what the wealthy are (or aren’t) paying – have been a hot topic

A new report found that the top 1% of Americans are avoiding taxes more than anticipated; they’ve been failing to report about 21% of their income.

There’s also been a more targeted push by progressives to introduce a new tax on wealth. Warren introduced a new bill that would increase taxes on the top 0.05% of households. If the measure had been in place in 2020, it would have raised $114 billion from billionaires alone.

White House Press Secretary Jen Psaki has said Warren and Biden share similar objectives for addressing that “those at the top are not doing their part,” but the two ultimately have different plans.

In an interview with Bloomberg, Warren praised the American Rescue Plan and Biden’s continual advocacy for it. “There is momentum now for real change, and tax policy is a critical part of that change,” she told Bloomberg.

Warren also recently Sen. Bernie Sanders and other progressive Democrats in introducing a bill that would target corporations where CEOs are at least 50 times more than the median worker. That bill could raise up to $150 billion in 10 years.

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With a federal wealth tax looking unlikely, states like New York could enact their own

FILE PHOTO: New York City Mayor Bill De Blasio speaks to the media during a press conference In the Queens borough of New York City, New York, U.S., April 10, 2020. REUTERS/Eduardo Munoz
New York City Mayor Bill De Blasio speaks to the media.

  • New York’s Democratic lawmakers may be able to push through a state wealth tax, Bloomberg reports.
  • Debate over a federal wealth tax continues, but some areas are taking matters into their own hands.
  • Places like Arizona and San Francisco have already enacted their own taxes.
  • Visit the Business section of Insider for more stories.

New York legislators may be able to push through taxes on the ultrawealthy amidst the turmoil surrounding Gov. Andrew Cuomo, Bloomberg reports

Cuomo previously outlined a worst-case scenario where New York’s wealthiest would see the country’s highest income rate taxes if the White House didn’t step in to help with the budget deficit. During the pandemic, Cuomo has said he wanted to make sure New York’s tax base was preserved, and wealth taxes would not help in that regard.

Now, according to Bloomberg, New York’s Democratic lawmakers are considering a package that would “go further,” given that the governor is embroiled in a sexual-harassment scandal and a federal investigation into his handling of nursing homes during the pandemic.

Progressives in New York have been champing at the bit to increase taxes on the wealthy. New York City Mayor Bill de Blasio previously called for a progressive tax and a tax on billionaires in his final State of the City address. And New York representative Alexandria Ocasio-Cortez has previously called to raise the top marginal rate on those earning over $10 million.

“New York City will fight for new progressive income taxes that establish brackets with increased tax rates for high earners and the ultra-wealthy,” de Blasio said in a release on the address. “And with more billionaires than any other city in America, New York City will push for a billionaires’ tax. The billions of dollars raised from these progressive taxes will go into investing in New York City’s schools, working families, and a recovery for all of us.”

The Wall Street Journal reported in mid-February that some Democratic lawmakers in New York were coalescing around what’s called a mark-to-market tax on billionaires. Those billionaires would pay capital gains taxes annually on appreciating assets, not just at their sales.

As talk of a federal wealth tax grows, some places have already enacted them

Sen. Elizabeth Warren recently renewed her calls for a wealth tax, introducing the Ultra-Millionaire Tax Act with several other progressives. Under Warren’s plan, households with a net worth between $50 million and $1 billion would see a 2% tax, and households with a net worth over $1 billion would see a 3% tax.

Treasury Secretary Janet Yellen has said that a wealth tax poses “difficult” implementation problems, and it’s not favored by President Joe Biden. But some places in the US have already taken matters into their own hands.

San Francisco voters passed a tax in November on business owners and top executives who earn at least 100 times more than one of their average workers. Those CEOs earning 100 times more than their average worker would be taxed an additional 0.1% on business tax payments. The surcharge also increases to 0.1% of however much more they earn. 

And Arizona passed an additional income tax on its high-earners; all of the money raised will go to public and charter schools. The creators of that proposition estimated that it could bring in $940 million annually.

In Washington state, lawmakers are considering a net-worth tax that could generate up to $4.9 billion in revenue. One millionaire, Dan Price, is out advocating for it. “I’ve been demanding to Washington State to tax me more,” he told Insider’s Hayley Cuccinello.

So, while there may not ultimately be a federal wealth tax, a patchwork of state and city taxes on the wealthy could arise to take its place.

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Elizabeth Warren’s new wealth tax bill would have raised $114 billion from billionaires in 2020

elizabeth warren
Sen. Elizabeth Warren has continually advocated for a wealth tax.

  • Several Democrats just proposed a wealth tax that would apply to 0.05% of American households.
  • An analysis finds billionaires would have paid $114 billion in 2020 if the plan was in effect.
  • A wealth tax has been a popular proposal for addressing inequality but would face implementation issues.
  • Visit the Business section of Insider for more stories.

The newly proposed Ultra-Millionaire Tax Act would have raised $114 billion from American billionaires in 2020 if it had been in effect.

This projection comes from an analysis from Americans for Tax Fairness (ATF) and the Institute for Policy Studies (IPS). Looking at Forbes billionaire data, the analysis found that the wealth tax would raise $1.4 trillion over 10 years – and that billionaire wealth still would increase under the proposal. 

“If the past continues, billionaire wealth has grown much faster than the economy and wages overall, and that’s been true for 40 years,” Chuck Collins, the director of the program on inequality and the common good at IPS, told Insider. “In 1983, there were 18 billionaires.”

Sen. Elizabeth Warren, along with Reps. Pramila Jayapal and Brendan Boyle, introduced the act on Monday. Households with a net worth between $50 million and $1 billion would see a 2% tax, and those with a net worth over $1 billion would be taxed 3%. According to a press release, the tax would only apply to 0.05% of American households. 

A wealth tax was a key plank of Warren’s 2020 presidential platform. Critics voiced concern at the time over not just the constitutionality of such a tax, but whether it could even be effectively implemented. The latter concerns remain – in President Joe Biden’s administration, no less. Treasury Secretary Janet Yellen said last week it would be difficult to implement and that President Biden doesn’t favor it.

But the bill by progressive Democrats represents another attempt to address increasing inequality. In a press release for the bill, Representative Brendan Boyle said “the hyper concentration of wealth among a tiny number of multimillionaires and billionaires is a crisis for American capitalism and the American Dream.” 

Boyle added: “It is time for the ultra-millionaires to pay their fair share so that critical government programs can be bolstered to help the everyday American. Our proposal will make a meaningful difference in the lives of Americans who need the most help and bolster our country’s shrinking middle class.”

Concerns over constitutionality and implementation

Warren’s proposal also contains two letters from law professors on the constitutionality of such a tax, specifically addressing which clause from Article I would be applied.

Former Justice Dept. tax attorney James Mann previously told Insider’s Taylor Nicole Rogers that the constitutionality of the tax would probably end up debated in front of the Supreme Court.

Regarding implementation, Stephen Henley, senior managing director and national tax practice leader at CBIZ MHM, previously told Insider that such a wealth tax would require those wealthy individuals to value their net assets every year. “You can imagine having to go out and get values of all those assets every year would be an administrative nightmare,” he said.

In particular, people could come up with ways to devalue their assets, or hire appraisers that use methodologies that could benefit them. And the IRS may not have the manpower or bandwidth for the auditors who would audit those forms.

Collins said there would be “real” potential implementation difficulties, and “startup issues” with both the enforcement and creation of a “new tax regime … But then once it’s in place, I think it’s not that hard to update it on an annual basis.”

The bill also contains several anti-evasion measures, including a $100 billion investment in the IRS and a 30% minimum audit rate for those impacted by the tax.

Millionaire Liesel Pritzker Simmons – who would see higher taxes under Warren’s plan – has been a long time wealth tax advocate. Pritzker Simmons is an heiress of the Hyatt hotel empire fortune. She’s also the cofounder of and principal at Blue Haven Initiative, which invests in impact-driven groups and companies.

Regarding the concerns over implementation and enforcement, she told Insider, “I think every person that would be affected by this tax knows exactly how much money they have and exactly where it’s located.” 

Liesel Pritzker Simmons

Inequality has been growing during the pandemic, and a wealth tax could be a fix

Throughout the pandemic, American billionaires have seen major gains, adding $1.3 trillion to their collective net worths.

Overall, American billionaires are now worth $4.3 billion; the bottom half of the population holds just about $2.4 trillion in wealth. Globally, an Oxfam report found billionaires increased their wealth by $3.9 trillion from March 18, 2020, to December 30, 2020. 

That report also found that, while billionaires recouped all of their losses by November, recovery for the bottom could take up to a decade – and that a wealth tax was one step “towards a better world.” Warren herself has previously argued that a wealth tax is one way to invest and build in the future of the country and economy.

A wealth tax has also seen popular support: An Insider poll from February 2019 found that 54% of Americans supported Warren’s proposal. 

“Inequality is ballooning – I mean, the pandemic has laid this bare – but it didn’t just start with a pandemic. This has been going on for years. For me, why I really support a wealth tax is that I think it’s going to be good for the economy,” Pritzker Simmons said.  “We can see that trickle-down economics doesn’t work. We’ve seen this play out over the last 40 years.” 

She added: “I think that a policy fix is in order.” 

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Janet Yellen’s Treasury sees a wealth tax as too hard to implement, but she has other ideas on what to change

janet yellen fed
Janet Yellen.

  • Treasury Secretary Janet Yellen said she’s not planning a wealth tax like Elizabeth Warren’s.
  • Yellen told The New York Times that such a tax would have “very difficult implementation problems.”
  • But she is looking into other tax routes, including capital gains and the corporate tax. 
  • Visit the Business section of Insider for more stories.

Treasury Secretary Janet Yellen has indicated that a wealth tax is off the table, but she is looking at other potentially significant measures.

In an interview with The New York Times’ Andrew Ross Sorkin, Yellen said she wasn’t planning a wealth tax like Sen. Elizabeth Warren’s proposal because it’s “something that has very difficult implementation problems.”

Yellen also said during a virtual conference held by the Times that “a wealth tax has been discussed,” but it’s not favored by President Biden.

One major plank of Sen. Warren’s presidential run – and, later, Sen. Bernie Sanders’ run – was a wealth tax. Warren called for an “Ultra-Millionaire Tax” that would levy an annual 2% tax on households with net worths between $50 million and $1 billion. Households that have a net worth over $1 billion would have seen a 3% annual tax. Warren has renewed her calls for a wealth tax amidst the pandemic, as inequality grows along with the K-shaped recovery.

Stephen Henley, senior managing director and national tax practice leader at CBIZ MHM, told Insider that wealth taxes like Warren’s and Sanders’s would require wealthy individuals to value their net assets every year, similarly to how assets are valued for an estate tax when someone dies. With a wealth tax, that valuing would be annual – “not just when you die.”

“So somebody that might have $50 million or $100 million of wealth, you can imagine having to go out and get values of all those assets every year would be an administrative nightmare,” Henley said.

Many of those individuals may hold private assets in addition to public ones, another “administrative nightmare” for valuing assets.

“You can also see where that would be ripe for tax avoidance, and even tax evasion,” Henley said.

For instance, if the legislation didn’t require someone to get an appraisal, they’d have to come up with some way to devalue it. Or people could hire appraisers that know the appraisal is for a wealth tax, and “use certain methodologies that will benefit the client.”

Henley also added that the IRS “doesn’t have the manpower or the bandwidth” to increase their auditors, who would audit all of those forms. 

So if not a wealth tax, then what? Yellen has indicated that she’s open to some other ways to raise tax revenues. 

There may be some other potential changes on the horizon

The Times reports that Yellen is looking into ending one tax rule that could have a significant impact: the “stepped-up basis” on capital gains.

For this kind of tax, Henley gives the example of a piece of land that someone bought for hundreds of thousands of dollars years ago, but now it’s worth $5 million. The owner of that land then passes away, and the land is left to an heir. So even though the land has appreciated in value, it’s passed along to the heir at that current value of $5 million.

Under the current regime, there would be no capital gains tax on how much the land appreciated, even though in fact it would have gained millions of dollars in value. Instead, capital gains taxes would be measured “only on the change in the asset’s value relative to the stepped-up basis,” according to the Congressional Budget Office – aka, gains beyond that $5 million value at the time of inheritance.

“So in other words, if they were to immediately sell the land for $5 million after the will was probated, and they got the land, then they would pay no income tax on that,” Henley said. “No capital gains tax.”

The Times reports that Yellen “plans to explore stopping” that rule.

Henley said that, broadly, Biden’s plan to increase the capital gains tax would be easier to implement than a wealth tax.

“It would probably generate more revenue immediately,” Henley said, “because you’d have everybody that is subject to that threshold over $1 million, either a capital gain over $1 million or income over $1 million – they’d be taxing.”

Per Bloomberg, Yellen also said the Biden administration is looking to raise the corporate tax to 28%. As Insider’s Allana Akhtar previously reported, that increase to 28% from 21% has long been a part of Biden’s tax plan.

Yellen also addressed a financial-transactions tax, a measure which Sanders has said he would use to make college tuition free and ease student debt

“It could deter speculation but it might also have negative impacts,” she said, according to the Times.

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