This story was originally published by ProPublica.
After secret IRS files from ProPublica showed how the wealthiest avoid taxes — often by downplaying their income and building on their wealth — the Biden administration unveiled a plan that could generate hundreds of billions of tax revenue. His fate is uncertain.
Last year, ProPublica, drawing on a wealth of IRS data, gave the public his widest view
ever taxes from the wealthiest Americans. The first article in the Secret IRS Files series
Match real numbers with a basic truth about the US tax system: Billionaires like Jeff Bezos, Elon Musk, and Warren Buffett can easily protect their wealth from taxes by avoiding the types of income captured on a tax return.
A proposal released today by the Biden administration directly targets this issue. The policy, if adopted, would close this escape route for some of the wealthiest. Vast increases in wealth would result in taxes being owed.
Generally, the IRS does not tax gains unless they are “realized,” usually when someone sells a stock that has gone up in value. Billionaires who hold on to assets that have appreciated benefit from those unrealized gains – they often borrow against them – tax-free.
This is by no means a new bug in the US system. But like ProPublica Explain
last year, the explosion of wealth inequality in recent decades, coupled with the particular nature of building these new fortunes, has made unrealized gains particularly significant at this point in our history.
Past US presidents have, on occasion, pushed to raise taxes on the wealthy, but usually by raising traditional tax rates. Biden’s proposal calls for a paradigm shift: It would change what counts as income. “Although the taxation of unrealized gains is still a long way from being enacted, and even if it were to await an uncertain fate in the Supreme Court, the presidential endorsement of the concept is a milestone in the history of the tax. on income,” said Lawrence Zelenak, a Duke Professor in the University’s School of Law whose expertise includes income and corporate tax and tax policy.
As the White House pointed out, the new tax would only apply to households worth more than $100 million. They would be liable for a tax of at least 20% on their “full income”, as the White House document
terms, a definition that includes unrealized gains. News of the proposal, which was part of Biden’s 2023 budget plan, was first reported by Tthe washington post
Under the current system, the wealthiest Americans pay far from that tax rate
on the earnings of their wealth. The 25 richest Americans, as measured by Forbes, grew richer by $401 billion from 2014 to 2018. ProPublica’s analysis of IRS data found the group paid a total of $13.6 billion. billion in federal income taxes during this period, a rate of only 3.4%
posted on Twitter, University of California, Berkeley economist Gabriel Zucman estimated that the 10 richest Americans alone would owe at least $215 billion under the plan.
In total, the Biden administration estimates, the new tax would generate $360 billion in additional revenue over 10 years.
The plan would give those affected by the tax a nine-year period to pay their “initial” obligations: In other words, someone whose fortune grew by $10 billion by the time the bill became law would have that time to pay the $2 billion they owe. Going forward, further increases in wealth would result in taxes being due over a period of five years.
Although Biden’s Billionaire Minimum Income Tax, as it is called, is a major departure from past presidential proposals, it would roll out features that are already part of current tax law.
For example, there is the Alternative Minimum Tax, a measure first adopted decades ago in response to revelations that the wealthiest were easily avoiding paying income taxes
. The AMT is supposed to work as a kind of fail-safe, imposing taxes on the wealthy who have used huge deductions to erase their income for tax purposes
and thus avoid taxes. But this often fails. For example, we found several examples of billionaires pay not a penny
income taxes, sometimes for years at a time.
Like the AMT, Biden’s minimum tax would operate alongside the current tax code
. If a billionaire happened to be already paying 20% of their total income, the Biden plan would incur no additional taxes…Continue reading