The case for a billionaires income tax

As Democrats scramble to reach consensus on how to pay for a massive budget deal, a proposal to increase taxes on U.S. billionaires is gaining momentum. Here’s one reason this is a good idea: Since March 2020, the beginning of the pandemic, 745 U.S. billionaires have seen their total wealth increase by $2.1 trillion, a gain of 70 percent.

Senate Finance Chairman Ron Wyden (D-Ore.) has been pushing what he calls a “Billionaires Income Tax” for some time now, as one of a number of fair tax reforms to pay for President Biden’s sweeping “Build Back Better” agenda.

With Sen. Kyrsten Sinema (D-Ariz.) obstinately opposing more traditional increases, including raising top individual and corporate rates, this tax on the America’s very richest is reportedly now in the center of negotiations.  

While Wyden has not yet published the details, the general concept is to levy a tax on people with $1 billion in assets or those earning more than $100 million in income three years in a row. The tiny fraction of Americans who fall into that category would pay a tax every year on the gains from their tradable financial assets.

Non-tradable assets, such as ownership in a business, real estate, art or jewelry, would not be paid until they are sold. But to discourage billionaires from avoiding the tax by swapping derivatives for diamonds, the plan would impose an annual interest fee on the gains in value of less liquid assets, which would be paid all at once at the time of sale.

Experts predict the tax would raise an estimated $200 billion to $250 billion over 10 years — a sum that would still leave U.S. billionaires with more money than they could ever manage to spend. 

This group of America’s 700 or so wealthiest people now holds a total of $5 trillion. When (since 1983) have they enjoyed the biggest bump in their combined fortunes? That would be during a pandemic that has infected over 45 million and killed over 725,000 in the United States alone.

Pandemic wealth gains, along with recent exposes on billionaire tax avoidance, have set the stage for this targeted and politically popular tax on billionaires.

In June, ProPublica published revelations from an IRS leak showing how little taxes the wealthiest Americans have paid over the last 15 years. It exposed that billionaire Jeff Bezos paid no federal income taxes in 2007 and 2011, as well as that Elon Musk, now the wealthiest person in the world, paid no federal income taxes in 2018.

A subsequent ProPublica expose documented how more than half of the 100 wealthiest Americans use a system of complex trusts, including Granter Retained Annuity Trusts (GRATs), to pass on billions while avoiding estate and gift taxes. One of the various billionaires deploying these trusts is Stephen Schwarzman, founder of private equity giant Blackstone, whose wealth has increased 132 percent during the pandemic, rising from $15 billion to $35.8 billion.

On Sept. 23, the White House released findings that the 400 wealthiest U.S. billionaires in paid an average effective federal income tax rate of just 8.2 percent between 2010 and 2018, much less than the 14 percent average for ordinary taxpayers. 

In a case study of billionaire tax avoidance, Bloomberg Businessweek has just reported that Nike founder and billionaire Phil Knight has already transferred about $10 billion in wealth free of estate and gift tax (avoiding roughly $3.6 billion in tax) and could avoid estate tax on up to an additional $9 billion if he died today.

The recently leaked Pandora Papers exposed even more tax games of the world’s wealthy, including the use of secrecy jurisdictions, shell companies, and trusts in states like South Dakota and Delaware.

A Billionaires Income Tax would be most effective if combined with beefed-up IRS enforcement, the banning of tax avoidance vehicles like GRATs, and the proposed global corporate minimum income tax.

And Democrats should not let Sinema and other conservative Democrats stand in the way of a full fair tax package to pay for our country’s urgent needs. We should restore the income and corporate rates that Republicans slashed in 2017. And we can go further to ensure the wealthy pay their fair share by boosting a House Ways and Means proposal for a surcharge on mega-millionaire incomes and through excise taxes to discourage excessive CEO pay and stock buybacks. 

But nothing will address extreme wealthy inequality like a Billionaire Income Tax. And there is no better time to ensure that billionaires pay their fair share.

Chuck Collins is the author of “The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions” (Polity Books).  He directs the Program on Inequality at the Institute for Policy Studies where he co-edits the website, Inequality.org. Follow him on Twitter: @Chuck99to1