- As infrastructure talks begin to heat up, taxes – and how much they’ll go up – will be a hot topic.
- Yes, Biden wants to raise taxes on the wealthy, but he doesn’t want to do an outright wealth tax.
- It’s an important distinction, as Biden is proposing tweaks to already existing programs.
- See more stories on Insider’s business page.
Yes, President Joe Biden wants to tax the wealthiest Americans. But he wouldn’t do it with a wealth tax.
It may seem like a small difference, but it’s a significant one. A wealth tax is an outright tax on someone’s net worth, while Biden is proposing changes to existing taxes.
Of course, there’s a famous example of a wealth tax from one of Biden’s rivals from the 2020 campaign: Sen. Elizabeth Warren’s Ultra-Millionaire Tax Act, which would levy additional taxes on those with a net worth of $50 million or more.
White House Press Secretary Jen Psaki broke it down at a March press briefing: “I know Sen. Warren has put forward a wealth tax, and the president shares her view that middle-class families are paying more than their fair share and those at the top are not doing their part, so certainly he has that shared objective,” before continuing, “He laid out during the campaign his own plans for fixing this, which are different from Sen. Warren’s.”
When he talks about raising taxes, Biden’s tone strikes notes of Warren and Sanders, saying hikes won’t impact the wealthiest’s standard of living or “deprive” them of their second or third homes, and he’s “sick and tired of ordinary people being fleeced.”
But he’s not legislating like Warren and leaning into an outright wealth tax (even though it’s consistently popular). Instead, he’s opting for more of a backdoor, with a series of complex reforms that may be more palatable to lawmakers. It shows the potential limitations of how far left Biden is willing to – or thinks he can – go.
Biden would raise the income tax rate to 39.6% for Americans earning over $400,000, and would increase the rate of tax on assets – called capital gains – to be in line with that 39.6% income tax, rather than the current lower rate of around 20%. He also wants to ramp up IRS enforcement on the ultrawealthy, who have been found to hide billions. He also wants to close up loopholes like the stepped-up basis, which can provide massive tax relief on inherited properties.
“While there may be some overlap in the people – the subset of the population – being hit by these tax hikes, the design is very different,” Garrett Watson, a senior policy analyst at the Tax Foundation, told Insider of the difference between the two plans. “One is hitting income, and the other is taxing the stock of wealth or someone’s net worth.”
The Biden White House hasn’t totally dismissed the idea of an outright wealth tax, but it hasn’t supported it, either. Treasury Secretary Janet Yellen cited implementation problems as one reason it would be difficult to execute, but never fully ruled it out.
How Biden’s proposal would impact the wealthy
That difference in design could actually have a disparate impact on the wealthiest Americans, according to David Gamage, a law professor at Indiana University who recently testified in front of Warren and a Senate Finance subcommittee on wealth taxes.
Biden’s proposal to hike the capital-gains rate would have a big impact on some of the very wealthy, Gamage told Insider. Specifically, he said, people like Wall Street financiers earn most of their income from capital gains (like selling off stocks increasing in value). That means they essentially pay half the tax rate on their income, unlike people drawing a straightforward salary.
But then there’s people like Elon Musk and Bill Gates and Warren Buffett.
“Most of their wealth or economic income is in the form of their stuff they own going up in value because of the things they’ve done, primarily stock,” Gamage said, “and until they sell that stock – which they’re never going to do, for the most part, because there’s ways around that – it wouldn’t be included in the tax space.”
Things like closing some potential loopholes, including the stepped-up basis, which taxes an inheritance on the value it’s inherited at – not value it gained while held by its prior owner – could potentially have a big impact on megamillionaires and billionaires, said Gamage.
But, according to Bill Smith, managing director for CBIZ MHM’s national tax office, said that getting through those loopholes adjustments could be paramount; he said it could be a “money-loser” if it just taxes capital gains alone, because people might hold off on selling them.
What it all means
If all of that sounds a bit confusing to you, you’re not alone.
Frank Clemente, president of Americans for Tax Fairness, noted that wealth taxes often poll well – and that could be because of how straightforward they are.
“I think that it does so well in polls because it’s easy to understand. It’s very clear. It does not hit people,” Clemente said. “If you’re assessing a wealth tax on $50 million, everybody knows they’re not at $50 million except for a very small slice of the population.” Clemente, a wealth tax advocate, said he wishes Biden had been a bit bolder in his proposals, but thinks he “calibrated his position to what he thinks he could get through Congress.”
However, that doesn’t mean talks of a wealth tax will simply just go away; Smith said he doesn’t think that we’re done with an either/or situation.
“I think the Biden proposals have a number of steps in the right direction, but we need more than what’s currently being proposed to really fix the deep flaws in the income tax,” Gamage said, noting that a proposal like Biden’s could work well in tandem with Warren’s wealth tax.
And what’s been proposed isn’t final yet. There’s a long road of negotiations over different economic packages and their funding ahead. It’ll be a hot tax summer, as politicians argue over how they’ll change and who will pay them. Currently, the top 1% of tax filers would shoulder the burden of proposed changes on individuals, paying $100,000 more annually.
“It’ll be interesting to see how this stuff moves through Congress,” Watson said.
For his part, Biden has vocally defended the tax measures laid out in his plans, emphasizing fairness and equity.
“This is about making the average multimillionaire pay just a fair share,” he said in one fiery address. “It’s not going to affect their standard of living a little bit.”
But it also won’t target their wealth.