Biden to propose new minimum tax on wealthiest Americans

The proposal would affect fewer than 20,000 households, and would only apply to those who generally do not pay at least 20% in tax on a combination of defined income and unsold assets such as stocks and closely held businesses. But their unrealized benefits. According to a White House fact sheet released ahead of Monday’s full budget proposal, the plan will generate nearly $360 billion in revenue over 10 years. That’s almost twice as much money as raising the top personal income tax rate from 37% to 39.6%, and will affect a much smaller group of people.

The biggest chunk of money in the new Biden plan will come from taxes on unrealized gains made over several years, which could include the wealth of founders of large technology companies such as Amazon.com Inc. and Facebook parent Meta Platform Inc. They could spread their initial payout over nine years; Subsequent annual minimum taxes can be spread out over five years.

There will be no exemption for particular asset classes, but there will be special rules for illiquid taxpayers. People don’t have to do an annual appraisal of illiquid assets, and they can defer certain taxes—along with interest charges—until death or the sale of the asset.

The proposal is the latest Biden administration’s attempt to capture more revenue from the capital gains of wealthy Americans. Like other Democratic ideas, it would mark a significant change in the way income is defined for tax purposes, creating a whole new separate tax structure that would capture rising property values ​​for the government even before those assets were sold. .

The Biden plan has several features that differ from previous attempts to tax Americans’ wealthiest slayers, such as an annual wealth tax or tax assets as if they were sold each year.

“While there are differences of opinion between the presidential proposal and the billionaire income tax, we are rowing in the same direction,” said Senate Finance Committee Chairman Ron Wyden (D., Ore.), referring to his plan.

Under the Biden plan, if the property has declined in value, the future stream of payments will be adjusted downward. The price increase would lead to a new, larger influx of tax payments. There may also be an adjustment in the required minimum-tax payment from the sale of the property. The policy’s objective is effectively a partial prepayment of taxes that will eventually be payable on sale, death or gift with a minimum average 20% tax rate over the long term.

Previous White House plans to tax unrealized capital gains on death and raise the capital gains rate faced stiff Democratic opposition on Capitol Hill, though the administration still supports those views.

Mr Wyden’s proposal, which would have focused more on the unrealized capital gains of billionaires, garnered support from Mr Biden but failed to gain traction with top congressional Democrats. Mr. Biden’s version, designed as a minimal tax, could face similar political hurdles in a closely divided Congress and even more trouble next year if the House or Senate suggest Republican controls. Huh.

If enacted, the measure could face legal challenges to its constitutionality under the 16th Amendment. Even with additional funding sought by Biden, the Internal Revenue Service may struggle to administer the proposal and will find itself in lengthy disputes with taxpayers.

Under current law, capital gains are taxed only when they are realized — when the asset is sold — and are taxed at lower rates than ordinary income. When people die, those unrealized gains are not taxed as income. Instead, heirs only pay capital gains tax on gains since the former owner’s death, and only when the heirs sell. They often pay estate taxes on their net worth upon death.

This system encourages people to keep valuable assets till death. Many wealthy people do the same thing, reporting taxable income each year that is much less than the gains in their wealth. The Biden plan would sharply reduce, but not eliminate, that incentive.

Creating proposals to raise more tax revenue from wealthy and high-income households as well as corporations that are acceptable to the party as a whole has been a central challenge for Democrats as they sought to pass their economic agenda. Lawmakers and Biden administration officials are hopeful that talks on that agenda can resume in the coming weeks, with the goal of passing a bill that raises taxes before the end of the summer after months of stalled efforts. .

Previous versions of that proposal already have tax increases of more than $1 trillion, which has broad support among Democrats, so lawmakers may not require a new Biden minimum tax in the short term.