Arrogant businessman holding cash and taking selfies with smartphone
During the State of the Union, President Biden mentioned one of his favorite projects: a “tax on billionaires”.
“Reward hard work, not just wealth,” he said. “Pass my proposal for a minimum tax for billionaires. Because no billionaire should pay a lower tax rate than a teacher or a firefighter.
That sounds good to many. But is it? Or does it smack of performance, discourse more than transformative action, like the “tenants charter of rightswas a designed soundbite that did not address the conditions causing the persistent issue.
The presumption behind the phrase “billionaire tax” is that not only do the really rich people get away with a lot – and they certainly do – but that a simple fix will change everything.
THE administration plan details is that “the wealthiest Americans pay a tax rate of at least 20% on all of their income, including unrealized capital gains”.
Most of that would be unrealized appreciation, because the wealthiest people don’t need to take large sums of cash. They have income in the form of assets that continue to generate more money, then borrow against assets to spend money. They get great rates, which means they pay far less than taxes, and they retain ownership of assets that continue to generate more.
Trying to tax unrealized capital gains is like taxing the value of assets that someone owns but hasn’t sold. Value is usually determined by the market, or how much something would sell for. But this is not a definitive number.
The tax of simply deciding the true value of unrealized asset appreciation would be monumental. Then there would be massive legal battles that would take years, fought by people with vast resources who could mount such a defense that the specific government budgets, time and personnel available to follow would be insufficient.
There there aren’t even enough IRS agents to do regular full audits on the rich. Where are the people who will do all this work? As I said last April, perhaps the wisest approach would be to tax what the rich borrow. It would be like a value added tax, only for those who can afford to pay it.
As the administration says of the plan, “President Biden’s Billionaire Minimum Income Tax will make the U.S. tax code fairer and reduce the deficit by about $360 billion over the next decade.” That’s $36 billion per year, or $51,428,571.43 per billionaire, which, at 20% of what they earn, would mean that each was on average bringing in over $257 million in asset growth.
Now, $360 billion in a decade is a lot of money. But it is wrong to say that there is no longer a deficit over this period. The deficit is expenditure that exceeds the national income per year. THE the deficit for this year alone is $421,409,781,344much more than the estimated ten years of billionaire tax collections.
The country must spend less And report more. While billionaires should absolutely pay a fair share, they are not the answer.
But naming billionaires as a magic bullet also ignores the number of millionaires. At the end of 2020, Credit Suisse estimated their number at around 22 million. Have everyone pump in an extra $2,000 a year and the resulting $44 million a year — not a one-time amount that took a decade to collect from billionaires and was supposed to be such a big deal.
Or companies. There is a lot of debate about how much companies actually pay in taxes. In the chart below, you can see the blue line, which is corporate tax revenue received by the federal government, and the red line, which is corporate profit. After pay taxes, with chart from Federal Reserve Bank of St. Louis and data from US Bureau of Economic Analysis.
After-tax corporate profits versus federal corporate tax revenues.
These represent the taxes paid and profits retained by quarter. In the last quarter that there is data for both, i.e. the first quarter of 2021, federal corporate income tax revenue was $273.6 billion. After-tax profits, nearly $2.6 trillion.
Do you think there might be enough in the over $10 trillion a year of after-tax profits at this point to reduce the deficit to, say, nothing?
Yes, the country needs to be smarter about how much it pays. But it must also tax enough. And that means more than billionaires.