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Trash the federal asset ‘billionaires’ tax

Wealth taxes like the one proposed by President Biden have already proven not to work in countries that tried it.

President Joe Biden
President Joe Biden
REUTERS/Leah Millis

Can you guess, based on the following clues, one of the worst ideas coming out of Washington recently? Your hints: It is opposed by members of both parties; it was tried in Europe and failed miserably; it threatens to upend our current taxation system and lastly, it is likely unconstitutional. If you guessed the federal asset tax (dubbed the “billionaires’ tax) then maybe you need to run for political office and teach some current legislators down there what not to do.

This proposal, embedded in Biden’s $6.9 trillion budget, would levy a 25% tax on both the income and assets of any American household worth $100 million or more. While it claims to raise billions in revenue, there are huge issues with the basic premise of the tax – taxing unrealized gains on the value of your house, land, patents, retirement savings, stocks, etc., even if you don’t have any plans to sell them. Households would be hit with a massive bill the first year the tax would be in effect.

This kind of tax could significantly limit new investments and economic activity. The entrepreneurial spirit that drives small business creation throughout the country, and here in Minnesota, is incentivized by the hope for a return on investment. We need to elect members of Congress from our state that understand this and vote out those that don’t. The government will only add to the financial burden associated with starting a business if they can step in and tax the value of your assets before they are even realized. Washington elites basically want to pump up their own revenue streams while average Americans carry all the risk in our economy.

Maybe this is why so many elected officials have refused to support the idea in the past. Last year’s version drew scorn from many notable Democrats. West Virginia Sen. Joe Manchin said “Unrealized gains is not the way to do it, as far as I’m concerned.” New Jersey Democratic Rep. Josh Gottheimer, co-chair of the Problem Solvers Caucus, noted “The billionaire tax and how they’ve put that forward doesn’t make much sense,” and former Treasury Secretary Lawrence Summers said “The billionaires’ tax is a bad idea whose time will never come.”

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And that’s just the Democrats. Republican Senate Whip John Thune was on the record saying “It’s essentially taxing people before they actually get the income, and that seems like a really dangerous precedent in tax law.” There’s plenty of evidence to suggest that public opinion matches this sentiment. A 2022 study by Zachary Liscow of the Yale University Law School and Edward Fox of the University of Michigan Law School found that 75% of Americans were opposed to taxing unrealized gains.

Wealth taxes like the one proposed by President Biden have already proven not to work in countries that tried it. Of the 12 European countries that instituted a similar wealth tax in the 90s, only three, Norway, Spain, and Switzerland, remain. Why was it such a failed experiment? It was expensive to administer, people who had assets but little income were hit hardest, and it encouraged the wealthy to leave.

Those thinking that the same wouldn’t happen here haven’t seen the Pioneer Institute report that observed Massachusetts’ net loss of $20 billion to other states where taxes are much lower. It’s a fact that the rich will take their assets elsewhere, leaving less taxable income on the table. Or the rich will just find loopholes and take advantage of legitimate tax breaks for which they are eligible. This new tax policy proposed by President Biden would add complexity to the tax code and be difficult to enforce, just as we saw in Europe. Don’t get me wrong, I support the goal of making sure all taxpayers pay their fair share. But other options make more sense than taxing unrealized gains that exist merely on paper. For example, better enforcement of the existing tax code could lead to billions of dollars that could be collected from the richest households.

Danny Nelson
Danny Nelson
Washington’s swamp creatures have suggested various iterations of the wealth tax in recent years to fill the federal government’s coffers. Remember the awful double death tax introduced in 2021? But these ideas may not even be constitutional. The “billionaire tax” likely violates Article I, Section 2, Clause 3 of the Constitution, which forbids the federal government from assessing “direct taxes” that aren’t apportioned equally among the states. Minnesota doesn’t have nearly as many millionaires as Texas or California, for example.

We are in a sad situation when the federal government is so desperate to find new ways to excavate our wallets. Minnesota voters should keep this in mind when considering the reelection cases of current members of Congress. Gov. Walz recently celebrated March 15 as Small Business Development Centers Day in Minnesota. Let’s honor the intent of that day and ensure that this new federal asset tax doesn’t go anywhere except the wastebasket.

Danny Nelson is an asset manager from Minneapolis.