Things are getting interesting in Washington, where Democrats are considering including one of the most significant tax changes in decades – a Billionaires Income Tax – in their budget reconciliation bill.
This Billionaires Income Tax, also known as mark-to-market, would mark a historic change in the way that the ultra-wealthy are taxed. It targets only the absolute richest Americans, about 700 billionaires (forget the top 1%, this is the top 0.0002%), and forces them to start paying taxes every year like most ordinary Americans who work for a living.
Not everyone is a fan of progressive taxation. The naysayers are already out in force, picking apart this proposal as “unrealistic” and “misguided.” They’re wrong. The Billionaires Income Tax is a well-designed, well-targeted, and entirely necessary change to our tax code.
Here are a few of the common objections you might be hearing about this plan, and the truth about why those objections are nonsense:
“This isn’t going to work because it’s too difficult to calculate the value of assets every year.”
The vast majority of wealth held by billionaires is held in tradable assets, like stock or derivatives, that have a clearly and publicly defined value at the beginning and end of each year. Tracking gains and losses for these kinds of assets is as simple as reading a financial statement.
For non-tradable assets that are harder to value every year, like ownership of a business or real estate, or an art collection or giant diamond, the government will simply wait until the asset is sold to tax it. This avoids the problem of having to do annual assessments of value, and is just like the current system, but with one major change: billionaires would now have to pay interest on those taxes to make up for years of being able to defer tax payments.
Some critics claim that this may lead to billionaires shifting their money from tradable to non-tradable assets in order to avoid taxes. That may be true to some extent, but
- a) billionaires are already manipulating their investments in artificial ways to avoid taxes, this wouldn’t be anything new; and
- b) if you really think this tax change is going to make all of America’s billionaires sell their stock and invest it in art and real estate, you don’t understand how billionaires think and invest.
“What if billionaires have all their money in assets they can’t sell and they don’t have enough cash to pay their taxes?”
First of all, they’re billionaires with immense financial resources, they can find a way to pay their taxes. As explained above, the increased value of non-tradable assets like real estate or businesses won’t actually be taxed every year, meaning that billionaires will only be taxed annually on assets that they could easily sell to pay their taxes (assuming they don’t already have enough easily-accessible cash on hand to pay).
Second of all, you could ask this exact same question of every single working person who has to pay taxes. No one says “what if that person making $90,000 a year doesn’t have enough after rent and childcare and car payments to pay her taxes? We should probably just not tax her at all.” No one says that because we expect individuals to find a way to pay their taxes, even if it’s not convenient to do so, because paying taxes is an obligation, not something you can decide whether or not to do.
“We shouldn’t be coming up with some brand new way to tax rich people when we have easier ways to do it!”
This one is a doozy. First of all, it’s interesting to hear this argument coming from people who are also adamantly opposed to raising corporate, income, and capital gains tax rates. It’s almost like they’re really just opposed to raising taxes on rich people at all, and are pretending to care about process only as a way to obstruct change.
And yes, it is true that it would be easier for Democrats to simply raise the corporate tax rate, raise the capital gains tax rate, and call it a day. We actually happen to agree that Democrats should do both of those things. Both are good ideas, but neither of them are sufficient, and neither would address the major problem that the Billionaires Income Tax is trying to fix: billionaires in America are currently able to avoid paying any taxes whatsoever on the vast majority of their earnings. Changing tax rates doesn’t do anything if they never pay those taxes at all.
We also disagree with the notion that this is some extreme new change that would transform our tax code and our economy. The vast majority of Americans pay income taxes every single month on their paychecks – it’s hardly a leap into the unknown to expect billionaires to pay taxes once a year. This may require some new staff at the IRS, but it’s hardly a radical transformation of our tax code.
