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.”
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.
[image_caption]Danny Nelson[/image_caption]
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.
Thank you for reminding us that the many dems and DFL types will do anything to empower big trickle-down government.
These are also the people who advocate “we need to tax businesses so the people will not pay more taxes.”
Of course – some actually believe this propaganda.
The piece is a hodgepodge of standard objections to taxing the wealthy, but the author’s chief objection appears to be to taxing unrealized gains.
The property tax on my house is based on an assessed value about twice the purchase price. Taxing unrealized gains (accrued to unliquidated assets, to boot) would seem, then, to be pretty universal, at least for the home-owning hoi polloi. I’m not a tax expert, but I’d guess that playing with the definition of “unrealized asset” is probably how the wealthy, their advisors, and their legislative representatives shelter vast amounts of wealth from taxation.
I’m amused by the author’s proposition that a tax on households with wealth exceeding $100 million is aimed at “average Americans.”
Good comment.
“For example, better enforcement of the existing tax code could lead to billions of dollars.” Very cynical, or very ignorant, take your pick, coming from a point of view with allies in the “defund the (tax) police” GOP whose most important plank is the protection of tax cheats.
Washington swamp creatures is colorful and cartoonish phrase, used by people who lack serious thought.
This reminds me of the case many years ago in which David Smith, the sculptor, died suddenly in a motorcycle accident, leaving two teenage daughters with an inheritance of unsold work. The IRS decided to tax the estate at its future estimated value, which caused great concern in the art world. Consequently the IRS got sued and lost; a great sigh of relief was heard from other artists.
We do have a problem of widening income and wealth gaps, and the tax code does need thorough revision to deal with it. But an unrealized gains tax has problems, and such seemingly simple measures aren’t likely to work.
Lost me pretty early here when you described a tax that applies to assets in excess of 100 million dollars as households. Where do you live?
Also when asserting the profit incentive underlying the entrepreneurial spirit would be negatively affected by limiting investments and economic activity. I think of entrepreneurs as folks starting small businesses. 100 million in acquired unrealized assets is not a small business.
A person in the provide capital for investments business is not an entrepreneur, they are just rent taking.
Wealth hoarding should be disincentivised though the tax code with a tax on unrealized assets like the one being proposed. Homeowners pay a tax in this way, why shouldn’t hedge funds? Oh, because billionaire donor class folks would pay it, not the poor and middle classes.
I wonder what the author thinks the optimal ginni coefficient is, and whether just banning the income tax in favor of a flat sales tax wouldn’t be more effective at achieving it.
Yeah this reads like another right wing, this is what I am against, but nothing about what are you for? Didn’t see any suggestion on how to fill the yearly tax collection hole vs what we are spending. Taxing the wealthy is Jessie James 101. why rob banks, because that is where the money is. Evidently the author thinks nothing bad will happen to the economy etc. etc. etc. if the $ were taken from the < $100M a year folks instead.
To whom much is given, much is required. The wealth disparity in our country requires progressive solutions like progressive taxation. Wealth grows through investments held by the most fortunate. It’s not physical labor or what we think of as “work” that grows that wealth. Poor and middle income folks don’t have that opportunity. Taxation of wealth was 91% a couple of generations ago. No one complained. It’s time to create fair taxation for all.
“Wealth grows through investments held by the most fortunate. It’s not physical labor or what we think of as “work” that grows that wealth.”
Not quite. Wealth actually comes from profiting from others’ work. As a young software developer, I was making $28k per year, and thought I hit it big. But my employer was charging $75/hr or more for my work. Plus, they’d bill for overtime, while we were paid salary. I certainly made a decent living, and am not complaining. But the people who owned the company got wealthy.
The argument for capitalism is basically that the people who risk their money should be compensated. Which is certainly a reasonable premise – some people lose their whole investment, like shareholders in Silicon Valley Bank did recently. The question is how should those capitalists contribute to the stability of the society that allows them to generate wealth through others’ labor? The laborers – the people whose income comes fromsalary and wages – already contribute through income and FICA taxes. But the tax code has a lower income tax rate for capital gains – i.e. the gains from investing capital in others’ labor. Why would that be?
So, for the author:
How should the wealthy contribute to the stability of the society that allows them to generate wealth through others’ labor?
The same people who get hysterical about taxing the massive wealth held by a tiny portion of Americans are the ones who don’t want to fund hiring at the IRS that would permit auditing rich folks’ annual tax returns for illegal stuff (see “Donald Trump’s tax situation,” etc.). They’re the same people who have lobbied year in and year out for tax loopholes that only benefit the super-wealthy. They’re the people who think a corporate employee who happens to be in the top-five executive suite deserves annual remuneration in the tens of millions of dollars–and who establish our obscene wealth gap.
The wealth tax in several European countries does, in fact, work. So let’s try it here, in the land of the plutocrats who have so much money they really, really don’t know what to do with it all (Elon Musk and Jeff Bezos and crew: that comment has your name on it).
I wonder how many asset managers have a client with more than $100 million in assets? The idea that this tax will harm ordinary people in any way is comical. And as soon as one reads “Washington’s swamp creatures” in a tax piece, one knows an argument isn’t going to be dispassionate, lol.
The problem is that the mega-rich are largely avoiding the income tax, their effective rates are often under 5%. Many often claim to owe nothing, such as Elon Musk and Trump. So this proposed tax is just an alternative mimimum income tax, using stated wealth as the factor. And of course it applies only to net wealth over $100 million; the first $100 million is exempt, so one needn’t worry too much about the oppressed super rich. It isn’t going to be “excavated” out of “our wallets”, as Mr Nelson declares. And if the Repub Supreme Court sees fit to protect the interests of the billionaire class, that will be just another reason for reform of that body.
One of the greatest political disasters for this country was the creation of a thriving billionaire class over the low tax “Conservative” Era (1980-202?) The newly-minted billionaires generally used their wealth to paralyze the government, redirect employment, bid up asset prices to absurd degrees, bamboozle the citizenry and advance reactionary interests. And it will only get worse the richer and richer they get, despite Mr Nelson heartfelt defense of their interests and supposed “entrepreneurial spirit”. True “small business” will still be safe under a wealth tax.
There will still be plenty of reasons to try to accumulate wealth worth over $100 million, don’t worry. And clipping the wings of our billionaires is desperately needed.
And it is also humorous that the author cites Joe Manchin as a voice of the Democratic Party in an attempt to make it sound like the Democratic Party opposes this tax. Nice try!
“This kind of tax could significantly limit new investments and economic activity.”
What a bunch of nonsense. True innovaters are not motivated by dollars nor demotivated by taxes. I think nobody, ever, has said “I have this great new idea, but a 25% tax rate is too high – I’m not going to bother.” Most just want to share their ideas with the world.
What this babble does remind us is how disconnected from reality the wealthy are. The rest of us working stiffs pay more than 25% in income taxes. Why do these people expect to enjoy the opportunities gained by living, working and/or doing business here but don’t want to contibute financially to maintaining the system?
In the end, the threat to pull assets out of the US in the face of such a tax plan is empty. Yes, we know these people will try to hide their assets offshore; the panama papers demonstrated that. But still, they’ll want to chase returns. And they’ll have to ask themselves; where’s the best balance of ROI vs political risk? China? Russia? Europe, Asia, Africa? Or the USA?
I guess the idea is that we should tax poor people more because they are more vulnerable and a lot easier to tax. Houses unlike portfolios don’t move across jurisdictional lines. It’s a lot simpler to pretend you do business in a post office box in Dublin than actually live in one.
Mr. Nelson provides pablum for the society’s upper crust. In the 1950s (which I’m old enough to remember), federal income taxes were at about 90%, virtually no one complained except for those at the very upper end, who – not surprisingly – wanted to keep more of their income. A 90% income tax left a millionaire with a mere $100,000 after taxes, which is pretty mediocre by today’s standards, though still higher than the metro’s median income. Worth remembering as well is that the 1950s was among the most economically prosperous decades in our national history.
It’s useful, however, to keep long-term inflation in mind. Arbitrarily choosing 1955 as the year in which our mythical millionaire paid $900,000 in taxes, leaving him (and in 1955, the odds are high that it would have been “him,” not “her”) with $100,000, he still should have little trouble providing his family with food and shelter. Inflation since then means his 1955 income would have the buying power of just over $1.1 million in today’s dollars, so he and his family hardly qualify as “hardship” cases.
Mr. Nelson is primarily making excuses to justify simple greed (“Them that has, gets. Them that don’t, don’t.”) – and to provide a rationale for his own occupation, which adds nothing to the nation’s GDP.
Is taxing a US citizen at a 90% annual income tax rate fair?
It is when that is simply the highest marginal rate. You were educated on that concept, were you not?
It would be a better idea to eliminate “step-up” basis of capital gains and make death a taxable event. The estate would pay the taxes owed on the gain of the asset, then it would be “stepped up” for the person inheriting it. That’s a loophole that costs taxpayers $20B a year with the overwhelming benefit going to the wealthiest 10% of households.
Here’s the deal. Rich people don’t have to pay taxes. Our tax code is structured in way that make it possible for them to do that. But that doesn’t mean that they don’t, or that they don’t want to pay taxes. The fact is, rich people pay significant amounts in taxes because it is in their interest to do so.
Well, the “swamp creature” reference would get a comment blocked around here on a normal day so I’m not sure how it survives in a community voice piece. Is Minnpost looking for a Tucker Carlson replacement?
There’s no substance to respond to in this piece, it’s just trickle down magical thinking organized around Libertarian/Republican whining about taxes whenever they get a chance. As for “Asset Managers”, all I can say is you take advice from a financial sector that routinely crashes itself at your own risk. If the dumbfounded expression on Greenspan’s face during Great Recession wasn’t enough to make an impression on you, I’m afraid you may be beyond reason. Anyone who’s STILL trying to sell a Somalia economic model has simply not been paying attention. Functioning governments are NOT bad for the economy. Every time these guys get into power they cook up financial crises, deficits, and recessions. Move on, nothing to see here.
Is this a one time tax? How are you going to track LLC’s in grandchildren’s name? How about IRA’s that have been in existence for years, how far do you go back ? How about folks that bought tax free bonds in their retirement portfolio? You will need 87,000 new IRS agents….. Oh wait, I think we them! There are a multitude of ways to put off paying taxes until you cash in on the investment or fund. Good luck outsmarting professional money managers with Government workers.
You apparently missed that the tax applies to taxpayers with wealth over $100 million and applies just to the amount over that. It’s estimated at .o1% of filers. And don’t worry, if the tax is passed the IRS will promulgate regs to deal with your “concerns”.
And of course the IRS should concentrate its resources on the (many) wealthy who are doing everything they can to pay literally nothing in income tax. That’s been a national scandal for over 30 years now.
The thing that always amazes me with all this anti-tax gibberish is it’s ability to ignore reality. If these taxes destroy economies as these people always claim… why isn’t the economy in the tank right now? If their model worked… we wouldn’t have the surpluses they’re complaining about in the first place because tax revenue goes down, not up in recessions. Meanwhile, their magic tax cuts never forestall recessions and frequently precede or even trigger recessions. So we always have this scenario wherein we’re sitting on surpluses, low unemployment, and growth, while these guys claim that taxes kill economies. Whatever.