Senate Finance Committee Chairman Ron Wyden (D-Ore.) said Monday he will “in a matter of days” release a tax on billionaires that economists and tax experts project could raise more than half of its revenue from just 10 people, including Tesla co-founder and CEO Elon Musk and Amazon founder Jeff Bezos. (Bezos is the owner of The Washington Post.) Estimates vary widely on exactly how much money the plan would bring into federal coffers, in part because no such idea has ever been put into effect.
While Democrats have increasingly eyed the plan as a way to win the support of Sen. Kyrsten Sinema (D-Ariz.), who has expressed opposition to increasing the corporate tax rate, some legal scholars have warned it could get struck down by the Supreme Court. And while negotiations are rapidly evolving, Democrats are considering swapping the billionaire tax for a separate 3 percent “surtax” on millionaires earning more than $5 million per year, according to two people familiar with the negotiations who spoke on the condition of anonymity to reflect internal negotiations. Details remain very much in flux.
The competing tax plans show the difficult trade-offs Democrats must weigh as they try to come to agreement on new sources of revenue to pay for President Biden’s climate and social spending plan — which could cost as much as $1.75 trillion over 10 years — by the end of this week.
The surtax on multimillionaires — originally pitched in House Democrats’ tax plan from September to pay for Biden’s economic package — may prove easier to administer and less vulnerable to legal challenge. But the billionaire tax would fall on far fewer people and, if successfully implemented, could do substantially more to reverse the massive concentration of wealth that Democrats have for years called reflective of a dangerous increase in U.S. inequality.
“If there’s a sliver of good news, it’s that there may be at least enough political cohesion to target a class that clearly has a great deal of resources way in excess of what it needs,” said Darrick Hamilton, an economist at the New School. “When you see billionaires being able to go to space and back for hobby and fun — in a society worried about floods on a periodic basis — that’s a problem.”
Billionaires have been able to pay low effective tax rates in part because the value of their company stock holdings is not subject to capital gains taxes until they are sold. Wyden’s plan would amount to a major shift in the U.S. tax code by leveling a 23.8 percent tax on the increase in stock value — or “unrealized capital gain” — even before those assets are sold.
As a result, the plan would fall primarily on billionaires who have held onto their publicly traded stock holdings — an easily measured and publicly identifiable criteria. Their private business holdings, such as Musk’s SpaceX or Bezos’s Blue Origin, would likely not fall under the tax.
Figures for how much the tax would raise over 10 years range from between $250 billion and upward of $500 billion. But roughly half of its potential new revenue would likely be paid by just the 10 wealthiest Americans, including Musk, Bezos, Bill Gates, Mark Zuckerberg and Warren Buffett, according to an estimate by Gabriel Zucman, an economist at the University of California at Berkeley. Several other tax experts supported his broad conclusions.
According to Zucman’s analysis, Musk would pay as much as $50 billion under the tax over its first five years, while Bezos could pay as much as $44 billion.
Musk weighed in on the proposal Monday evening, suggesting on Twitter that it could mark the beginning of a much more aggressive taxation campaign by Democrats. “Eventually they run out of other people’s money and then they come for you,” he wrote.
He also wrote: “Who is best at capital allocation — government or entrepreneurs — is indeed what it comes down to. The tricksters will conflate capital allocation with consumption.”
Collectively, the wealthiest 10 Americans own roughly $1.3 trillion, and the Wyden plan would require them to pay a combined $276 billion in taxes. These taxes would essentially fall on billionaires’ lifetime earnings. But, once paid, the billionaires would only pay further taxes on additional increases in unrealized stock gains. That distinguishes the Wyden plan from Sen. Elizabeth Warren’s (D-Mass.) wealth tax, which would indefinitely reduce billionaire wealth every year.
Democrats have increasingly viewed the billionaire tax as a way to pay for the economic package in part because of the tremendous increase in wealth at the top of the income distribution since the beginning of the pandemic. The top five billionaires saw their wealth increase 82 percent since the pandemic began, adding $370 billion since the S&P 500′s pre-pandemic peak in February 2020, according to calculations based on the Bloomberg Billionaires Index.
These calculations are based on wealth as of Sunday, Oct. 24, but revenue estimates will evolve along with billionaire’s wealth. On Monday alone, the total wealth held by Musk skyrocketed by as much as $36 billion due to a new order of Teslas from the rental company Hertz.
The new law would see Musk and his peers paying orders of magnitude more than they had before. A June report from the nonprofit news organization ProPublica found Buffett paid $23.7 million in taxes from 2014 to 2018. He would pay about a thousand times that number under the new proposal. Musk paid $455 million over that time, the report found, or about a hundred times less than he’d pay under the new proposal. Bezos’s new tax bill would be about 10 times what he paid in the earlier five-year period.
“It is being written so that when nurses and firefighters pay taxes with every paycheck, billionaires, who have figured out how to not pay taxes because they don’t take a wage, they’re going to have to pay their fair share,” Wyden told reporters on Monday night.
But questions abound about implementing the billionaire tax. Steve Rosenthal, senior fellow at the nonpartisan Tax Policy Center think tank, said it would be far simpler to enact Biden’s initial plan to tax capital gains when they are inherited — a proposal abandoned due to opposition from centrist Democrats — than create a new part of the tax code for billionaires.
Rosenthal also raised the question of how to ensure billionaires do not simply evade the tax by moving their publicly held stock into more opaque forms of assets, such as private companies. Wyden’s plan proposes an interest penalty on privately held assets, but such an idea is untested.
“While only a few taxpayers would pay the new tax, many more would need to value all their assets annually, including their privately-held businesses,” Rosenthal wrote in a blog critiquing the idea. “Taxpayers close to the line might move in and out of the new tax regime frequently. How would the IRS determine whether all billionaires filed properly?”
House Ways and Means Committee Chairman Richard E. Neal (D-Mass.) has also expressed reservations about the billionaire tax idea. Neal said House Democrats previously had looked at the idea and concluded then — as now — that “it will be a challenge.” Neal raised a number of areas to address, including what the government would do when billionaires had bad years and had taxes owed to them.
“I like the politics of it, yeah, I think it’s sensible,” he said. “I think the implementation of the plan may be a bit more challenging.”
Other tax experts say a conservative-dominated Supreme Court would be unlikely to uphold the new tax. The constitutionality of a tax on wealth remains unclear, and it is unclear if the administration could successfully convince the court that the measure is instead an income tax — which would be permissible under the 16th Amendment.
“If I were a justice, I would uphold it … But I’m not. Six Republican-appointed judges on the Supreme Court are,” said Daniel Hemel, a tax law professor at the University of Chicago. “There are lots of constitutional ways to do this, and we’ve picked the one constitutionally problematic option.”
Zucman rejected the argument that the tax could prove complicated to implement. He said it “would be the most progressive tax in history,” noting the next closest — the estate tax — raises roughly $20 billion a year, possibly as little as 5 percent of the Wyden plan.
“For these guys, the truth is it’s so easy to enforce the tax because it’s so obvious what they own,” Zucman said.