Tech broligarchs’ weird adoration of Donald Trump is problematic for a number of reasons, but their fears about having taxes levied on their unrealized capital gains may explain why they’re so willing to abandon the basic tenets of democracy to support their fellow billionaire.
In June, we told you about a coterie of billionaires who, despite publicly disavowing Trump after the January 6th Capitol attack, had come back around to the former president. However, in recent weeks, Trump’s support from billionaires has grown, particularly among Silicon Valley moguls like Elon Musk, Marc Andreessen, and Ben Horowitz. One high-profile venture capitalist, David Sacks, even went so far as to share a list on X of billionaires backing Trump, followed by a fairly blatant invitation to his ultra-wealthy peers: “Come on in, the water’s warm.”
Last month, Caroline Cadwalladr from The Guardian coined a clever portmanteau for this particular class of Trump-loving billionaires: “broligarchs.” The name has captured the public imagination by succinctly conveying the obnoxious and cavalier attitude of these dangerous, modern-day tycoons. If you can’t tell, we’re big fans of the term, too.
Broligarchs have given a variety of reasons for backing Trump, including his stances on issues relating to cryptocurrency, artificial intelligence, immigration, “wokeism,” and LGBTQ rights. But just like with their non-tech billionaire friends, the common denominator among them all is pretty simple: taxes.
On a July 16th episode of their podcast, “The Ben & Marc Show,” venture capitalists Marc Andreessen and Ben Horowitz both explained why they decided to publicly endorse Trump. Towards the end of the program, Andreessen said that his “final straw” for backing the former president boiled down to his opposition over President Biden’s Billionaire Minimum Income Tax (BMIT) proposal, and specifically its tax on unrealized capital gains. In his words, if the tax were to be enacted, “Venture capital just ends. Firms like ours just don’t exist.”
This is, of course, patently false.
Let’s start by defining some terms and laying out the problem that unrealized capital gains cause in our tax code. Capital gains are the value an asset (like stocks, bonds, or real estate) increases after one buys it. Capital gains are “realized” when investors decide to sell that asset and “unrealized” so long as it is unsold. In the US, capital gains are only taxed when they are realized; there is no regular tax on unrealized gains. In practice, this incentivizes ultra-wealthy investors to hold onto their assets for as long as possible to avoid income tax. ProPublica’s 2021 bombshell report found that, between 2014 and 2018, the 25 richest billionaires paid an average effective federal income tax rate of just 3.4% on over $401 billion in gains. In 2018, Elon Musk actually managed to get away with paying $0 in income taxes.
Biden’s BMIT proposal would help to put an end to this egregious tax avoidance on the part of the ultra-rich. His proposal would introduce an annual 25% minimum tax on the full income, including the unrealized capital gains, of households with over $100 million in wealth. Andreessen and his broligarch friends worry that this will spell the end of private start-up companies because founders will not have enough liquid assets to pay their tax bill. But if they had actually taken the time to read the fine print of Biden’s plan, they wouldn’t have made fools of themselves by worrying at all. That’s because, under Biden’s BMIT, people would not be liable for the tax if more than 80% of their wealth consists of illiquid assets like shares in private companies. (They would pay the tax plus an additional “deferral charge” if/when they sold their illiquid assets.)
There are other equally faulty concerns the broligarchs have about taxing unrealized capital gains. In an article about Andreessen and Horowitz’s endorsement announcement, Dan Primack of Axios claimed, “Taxing unrealized capital gains introduces perverse investment incentives, would be difficult to implement, and may sound fundamentally unfair (i.e., taxing monies that aren’t actually in the bank).” This is, to put it lightly, unfounded.
For one thing, taxing unrealized capital gains on a regular basis as Biden has proposed would correct the perverse investment incentives that our tax code currently perpetuates. Today, investors are effectively encouraged to hold onto assets as long as possible to avoid paying income tax. They are even encouraged to hold onto assets until death to help their children and grandchildren take advantage of the stepped-up basis loophole, which allows heirs to inherit assets tax-free and sell them without paying capital gains taxes. In short, this all dissuades investors from moving their money around to new firms and start-up companies, which in turn stifles innovation and economic growth.
No one is denying that there would be an administrative burden to enforcing a regular tax on unrealized capital gains, as some assets would surely be challenging to value annually, but it wouldn’t be as hard as broligarchs and other pundits make it out to be. For one thing, private businesses are regularly valued on secondary markets for the purposes of mergers and acquisitions and venture capital funding. If lawmakers were to pass Biden’s BMIT, these secondary markets could be required to report their valuations to the IRS. In a recent blog post, one of our members, Jeff Huggett, also weighed in on this subject: “As a rich person, I am required to value all of my assets quarterly and share those valuations with bankers and investors. Rich people know what their assets are worth, and to make a tax on unrealized gains work, they could simply be required to share that information with the government.”
Finally, and arguably most importantly, introducing a regular tax on unrealized capital gains is the least that lawmakers can do to make our tax code fairer. Broligarchs like to cry that they are only rich “on paper,” but this is patently absurd. If Elon Musk can secure over $25 billion in loans at the drop of a hat to buy an entire social media company, he absolutely has every cent of his wealth at his disposal and should be taxed accordingly. What is “unfair” is to allow broligarchs to continue to get away with paying next to nothing – or, in Musk’s case, sometimes literally nothing – in taxes, while millions of working people dutifully pay tax on every paycheck they receive.
By openly supporting Donald Trump – a man who has vowed, if elected, to be a dictator on “day one” – broligarchs are demonstrating just how little regard they have for American democracy. This is sad in and of itself, but the fact that they are willing to do it just to save a buck on Tax Day makes it all the more enraging.
We’re eagerly awaiting the unveiling of Vice President Harris’ official economic agenda, and we hope that she will take up the mantle of Biden’s proposal to tax the unrealized capital gains of wealthy investors like us. There’s too much at stake, both in our economy and our democracy, to allow broligarchs to continue to skirt their most basic civic duty.
