President Biden has proposed a tax increase on the rich that is part of his $1.8 trillion dollar American Families Plan. But, there is a lot of confusion around who exactly this plan intends to tax.
Even if you consider yourself rich and wealthy, are you a billionaire? If you are not worth hundreds of millions of dollars, or billions of dollars, then you are not one of the people The American Families Plan will target to tax.
Ordinary Americans pay taxes all year round, and so it’s easy for us to assume that everyone else is paying taxes too. But, do billionaires pay taxes? Ultimately that is just not the case. America’s billionaires have found ways to avoid paying taxes, even though their companies earn billions, even trillions of dollars every year. Did you know that Jeff Bezos income tax amount for years has been $0?
That just isn’t fair, and that is why there is a proposed billionaire tax that wants high-profile billionaires to finally pay taxes like the rest of Americans do. So, how would this tax hike proposal potentially make in impact on the tiny income tax amounts that the country’s richest people have been paying?
According to the American Families Plan, the proposed tax hikes would be 37% to 39.6% for the top earners in America. This means that unless you are making millions or over a billion dollars a year like Jeff Bezos, Elon Musk or Warren Buffet, your tax rate would be unaffected. So, what will this do to the ultra rich who make all their money by borrowing against their wealth and being only taxed for fake tiny salaries?
Many tax policy experts have been saying that one of the most important ways that the American Families Plan’s proposed wealth tax would cause an effect on billionaire wealth in America is because it plans to tax people’s assets that are worth over $1 million that are just sitting there, gaining value and still being untaxed. This is because for many wealthy people, they scheme the system by having these assets worth over $1 million, they borrow money and use their assets as collateral. Because they technically have debt, this will also impact how much they pay in taxes. However, they still own the assets that are worth $1 million and more, so they can easily pay off the debt when they want to. And when they die, these assets are inherited to their heirs but are never taxed.
Steve Wamhoff, who is the director of federal tax policy at the Institute on Taxation and Economic Policy, has said: “The whole expose is really an argument for the Biden Proposal to tax unrealized capital gains at death. I do think if you tax gains at death, it would be a huge step forward. You can’t erallys ay we fixed our tax code unless you do that.”
An economist at the Tax Foundation agreed with Steve Wamhoff’s assessment. Economist Erica York indicated that avoiding capital gains taxation was one of the main ways that billionaire’s avoid paying taxes. However, she said that another alternative to this proposed wealth tax would be to create a national sales tax that gets increased the richer you are. So, billionaires would pay much more than ordinary Americans.
A lot of the discussion around the billionaire wealth tax is because of an investigation by ProPublica that revealed that for many years, A-List billionaires like Jeff Bezos, the founder of Amazon and the space travel company Blue Origin, Elon Musk, the founder of Tesla, and other billionaires pay almost no income tax year and year.
The ProPublica investigation revealed that according to IRS records, the wealthiest Americans—who are also some of the wealthiest people in the world—pay income taxes based on salaries like $50,000 or $80,000, that is only a fraction of the hundreds of millions, if not billions, of dollars that their fortunes grow to each and every year.
These billionaires accomplish paying nearly no income tax by employing the use of a tax code that includes many sorts of deductions and imposes capital gains taxes on the assets only when the assets are sold, or otherwise called reazlied. So, if you still own the asset but you do not sell it, this means that you will never have to pay tax on money you earn from it.
Basically, if the asset is not sold, or realized, then there is no event that will trigger taxation. So many millionaires and billionaires sit on massive amounts of money that is “unrealized gains,” or assets that aren’t sold, and the size of the value will fluctuate each day based on the stock market.
But, the current tax laws make it so that capital gains are not taxed in other ways too. Because of President Trump’s Tax Cuts and Jobs Act, the 40% federal gift and estate exemption law is only implemented on inheritances that are much larger than ever before in history. This means that when someone dies and their fortune is being passed down, there is no taxation on it unless the value of the estate is $23.4 million or more.
The thing to remember is this: Biden’s American Families Plan proposed wealth taxes are not trying to change the estate tax rules. What he is trying to target is the generational handoffs that go tax free right now, in the form of unrealized gains.
By targeting people who are worth hundreds of millions or billions of dollars who are able to avoid paying taxes, a think tank called the Tax Policy Center has reported that they think if the policies from the American Family Plan are implemented, over $373 billion in tax income from billionaires would be earned over the next 10 years.
While the information from the ProPublic investigation was important for people to know, the IRS is likely going to conduct an investigation into how these billionaire’s financila information was leaked.