President Biden is back to budgeting with a new budget that proposes a 20% tax on wealthy individuals. It is called the “billionaire minimum income tax.”
It sounds good to those who are nowhere near that tax bracket but in reality it is pretty fuzzy math. Billionaires already pay far more than 20% on their assets so what is he playing at? He’s playing at taxing assets that are not sold. He warned us about this but maybe we’d forgotten? I know I had.
If someone owns more than $100 million in assets, the proposed law would tax them on the unrealized gains of those assets. So you bought something years ago that you haven’t sold but is worth more? The government will tax your equity. Will the government pay you a credit if the value of the asset is worth less? Unclear but probably not.
According to the Wall Street Journal, “The White House proposal would enormously complicate the tax code and create huge investment distortions.”
You may think this doesn’t apply to you because you’re not a millionaire but history shows that the U.S. creates these tax rules and slowly spreads them far and wide over time. Remember that income taxes were supposed to be a temporary measure to pay for the Civil War but they were later made permanent by Congress.
I find this proposal alarming but there is no guarantee that it passes Congress and if it does, it may be challenged in the courts given that the Constitution precludes taxing “unrealized capital gains.”