President Biden is poised today to introduce a 20% minimum tax on individuals with at least $100 million in wealth. The tax is comprised of both a minimum income tax and a new tax on the richest Americans’ unrealized capital gains, according to a White House summary of the proposal.
The tax on unrealized gains would target the wealthy’s stock, bond and digital currency portfolios for the first time, raising about $360 billion in revenues over the next decade, about half of it from the nation’s billionaires, the White House said.
“This minimum tax would make sure the wealthiest Americans no longer pay a tax rate lower than teachers and firefighters,” the White House said in its summary. The revamped proposal for a wealth tax is part of Biden’s second budget plan since taking office.
Winning over the Democrat votes need to pass the proposal, however, may be an uphill battle. Democrats have failed to pass similar wealth tax proposals from Sens. Elizabeth Warren (D-Mass.) and Ron Wyden (D-Ore.).
The proposal, which will be introduced in the form of a blueprint, will not include particulars of the White House’s social spending goals, which initially included trillions in new initiatives, including paid parental leave, early childhood education and green energy investments.
But the White House said the details of the spending plan are still being negotiated, as it positions messaging to win over Sen. Joe Manchin (D-W.Va.), who along with Sen. Kristen Sinema (D-Ariz.) managed to sideline Biden’s “Build Back Better” plan last year.
According to a White House report, Biden is presiding over the strongest economic growth in 40 years, which will decrease the deficit by more than $1.3 trillion this year.
The latest plan would also constitute a major change in the tax system and would likely face a constitutional challenge, according the American Taxpayers Union Foundation (ATUF).
The Constitution allows apportioned taxes—levied in proportion to a state’s population—but lawmakers attempts to levy unapportioned direct taxes, in this case singling out the wealthy for additional taxes, are unconstitutional, the organization claims.
Though France canceled its wealth tax in 2018 in response to capital flight and revenue losses, and all but three European nations repealed their wealth taxes for similar reasons in the past decade, the idea remains a priority for American progressive policy officials, ATUF said.
“A wealth tax would face serious administrative and compliance challenges due to valuation difficulties and tax evasion and avoidance issues,” Huaqun Li, a senior economist at the Tax Foundation, said in a blog.
Li said earlier wealth tax proposals, including Warren’s, would have reduced GDP between 0.37% and 0.43%, in addition to having dramatic short-term effects, including doubling the trade deficit.
A wealth tax would also “induce foreign inflows of hundreds of billions of dollars a year to replace reductions in U.S. savings, which would cause international investors to replace home-grown billionaires as owners of capital,” Li said.