(Bloomberg) -- President Joe Biden’s proposal to tax the unrealized gains of some of the richest Americans has taken legislative form with a new bill from two House Democrats.
The bill, which would affect 0.01% of US households and is intended to target wealth inequality, further establishes a once-fringe idea at the core of the party’s messaging on economic policy.
The legislation is unlikely to pass this year -- or potentially for many years -- as Democrats are projected to lose their House majority in the November midterm elections. The bill is also not part of the tax and climate deal that Senate Majority Leader Chuck Schumer and Senator Joe Manchin announced on Wednesday.
Still, the bill shows the Democrats’ commitment to tax-the-rich policies that have become the centerpiece of the party’s economic platform in recent years. The bill is sponsored by Representatives Don Beyer of Virginia and Steve Cohen of Tennessee.
“While working families pay taxes on each and every paycheck or pension payment, the ultrawealthy can make hundreds of millions of tax-free dollars a year,” Cohen said in a statement. “Instead of all their billions going to buying super yachts, rocket ships, professional sports teams, and Twitter, it is time that billionaires chip in like everyone else to pay at least a base level of taxes.”
The proposal, called the billionaires’ minimum income tax, would require that taxpayers worth more than $100 million pay a minimum of 20% on their capital gains each year, regardless of whether they sold assets for a profit or continue to hold them, according to a copy of the legislation obtained by Bloomberg News.
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Currently, taxes are only owed when a gain is “realized” — in other words, after selling a stock or a stake in a company. The legislation would require that wealthy individuals would owe taxes on the unrealized gains of their assets as well, a change that would upend long-standing tax principles.
Democrats say that the tax code makes wealth inequality worse because current laws only tax income, such as salaries, or the proceeds from the sale of stocks or real estate. Billionaires, including Jeff Bezos, Elon Musk and George Soros, are frequently able to avoid all taxes because they can borrow against their wealth and can avoid realizing any of their gains, according to a summary of the bill.
The billionaires’ minimum tax, and its embrace by Biden, shows how the Democratic Party has transformed its tax priorities in recent years. Ideas like taxing the accumulated fortunes of the wealthiest Americans, minimum levies on corporations and overhauling the capital gains taxation system quickly gained popularity with voters during the 2020 Democratic primary campaign.
Biden and Democratic leaders in Congress have attempted to pass many of these policies over the past year, but all but a handful of ideas have been stymied by a handful of moderate members, including Manchin, who Wednesday said he would agree to a narrow tax and climate plan that included a 15% minimum tax on corporations, ending a tax break for fund managers known as carried interest and increasing Internal Revenue Service enforcement on corporations and the wealthy.
One quirk about the billionaires’ tax is that wouldn’t necessarily mean that those wealthy taxpayers would owe every year. In a bear market year where individuals don’t have have gains, they wouldn’t owe anything.
Recently the very richest Americans have been racking up large losses, partly reversing their huge gains in the wake of the coronavirus pandemic. After adding $1.2 trillion to their collective net worth in 2020 and 2021, Americans on the Bloomberg Billionaires Index have lost more than half a trillion dollars, or about 15.2% of their wealth since the beginning of the year.
--With assistance from Ben Steverman.
