Senate Democrats are chasing the growing pile of wealth held by some of the wealthiest Americans.
They rolled out a proposal on Wednesday to tax roughly 700 of the nation's billionaires to finance what will be a slimmed-down spending package containing President Joe Biden's economic agenda.
The plan was authored by Sen. Ron Wyden of Oregon, chair of the Senate Finance Committee. It would apply to taxpayers earning above $100 million in annual income or those holding at least $1 billion in assets for three years.
"The Billionaires Income Tax would ensure billionaires pay tax every year, just like working Americans," Wyden said in a statement. "We have a historic opportunity with the Billionaires Income Tax to restore fairness to our tax code and fund critical investments in American families."
These superwealthy Americans would fall subject to the usual 23.8% capital gains tax on the increased value of unsold assets like stocks and bonds. Figures like Tesla CEO Elon Musk and Amazon founder Jeff Bezos could choose to pay their first tax bill in equal installments over a five-year period, according to Wyden's proposal. It's meant to give affected taxpayers more time to come up with the enormous sums of cash.
If successfully implemented, the plan would usher in a significant overhaul of a tax code that's chiefly been focused on income up to now. Billionaires often pay much lower taxes compared to everyone else because they accumulate wealth from the climbing value of their stock and company holdings. Those aren't subject to capital-gains taxes until they are sold, known then as a realized gain. Once sold it's taxed at a lower, preferential rate compared to workers' income.
What Democrats want to do is compel billionaires to pay taxes on the growing value of their assets annually, treating it as income. But the richest Americans could also take deductions if they suffer heavy losses.
Gabriel Zucman, a left-leaning economist at the University of California Berkeley, projects that Musk would owe up to $50 billion in taxes during the first five-year stretch of the plan. Bezos would pay up to $44 billion in the same period, per Zucman's projection.
—Gabriel Zucman (@gabriel_zucman) October 26, 2021
Democrats argue that the plan would help reverse years of growing inequality that's seen the wealthiest Americans benefit at the expense of everyone else. It also illustrates the growing appetite among Democrats to aggressively tax those at the very top, an issue brought to the fore during the 2020 presidential campaign.
White House economists estimated that the wealthiest 400 American families paid an average federal income tax rate of 8.2% between 2010 and 2018.
The plan sparking opposition from billionaires like Musk, whose fortune grew by $119 billion since the start of the year. "Eventually, they run out of other people's money and then they come for you," he tweeted on Monday evening.
Wyden's billionaire tax plan is serving as a back-up after Sen. Kyrsten Sinema of Arizona torpedoed Democratic efforts to raise the corporate tax rate and undo the 2017 Republican tax cuts. Democrats want to approve a social spending package to expand access to healthcare and address the climate emergency relying on their narrow majorities. But internal divides are bogging down negotiations and Democrats are scrambling to strike a deal with centrist holdouts on the plan's overall price tag. There's consensus to fully pay for it with tax hikes on the rich.
The Wyden proposal could generate up to $500 billion in fresh revenue, though estimates vary. While Democrats are broadly supportive of taxing the wealthy, some were cautious about fully backing the Wyden proposal.
"I'm anxious to look at it," Sen. Mark Warner of Virginia told Insider, adding "the devil's in the details."
Some experts warn that it would be difficult for the Internal Revenue Service to set up a new layer of the tax code for billionaires, who can afford to undertake lengthy legal battles and find escape hatches to dodge taxes. Wyden and other Democrats insist the federal government is up to the task to ensure the richest Americans pay up.
"We're talking around 700 people," Sen. Elizabeth Warren of Massachusetts told Insider on Tuesday. "It's not like trying to work through the dealings of millions of Americans. It's fewer people than in my high school graduating class."