Democrats proposed a tax on unrealized capital gains to fund their social spending bill. Elon Musk and others are pushing back.
Summary
Congressional Democrats are turning to a specific tax on billionaires’ wealth to fund their massive social spending bill.
- The controversial new taxing mechanism will require those with more than one billion dollars in assets to pay capital gains taxes on unrealized gains as they appreciate in value, “regardless of whether they are sold.”
- Billionaire CEO Elon Musk panned the plan on Twitter, saying “eventually, they run out of other people’s money” and agreed with one Twitter user’s argument that the proposal is “a step closer to imposing” this tax on “the average investor.”
- The unrealized capital gains tax scheme was hatched after Arizona Sen. Kyrsten Sinema refused to budge on increasing corporate taxes as a means to pay for the $3.5 trillion legislation.
- The social spending bill the tax plan may be attached to is in its final stages of negotiations, which has reportedly been pared back from $3.5 trillion to just under $2 trillion.
- Many priority issues for Congressional progressives have been cleaved from the bill, resulting in a warning from the Congressional Progressive Caucus that there can be no deal without their member’s say.
- NBC News reported on the practical problems such a tax scheme could face, with predictions that it would not be constitutional.
- Buzzfeed News framed the new “billionaire tax” as a response to Sen. Sinema’s rejection of tax increases on corporations and wealthy individuals, and are calling the new tax an effort to stop “tax avoidance.”
- The Washington Post highlighted efforts in Congress to find alternative funding mechanisms, including one that will bring in most of its money from just 10 people: ultra-wealthy individuals like Musk and Amazon’s Jeff Bezos.
- Newsmax ran an Associated Press report on criticisms of the “billionaire tax”, saying it is “too cumbersome”, with Democrats preferring a simpler taxation plan.
- The Daily Wire emphasized pushback on the efforts to tax unrealized capital gains, including Musk’s warnings along with the owner of the NBA’s Houston Rockets who warned “capitalism will slowly come to an end” if it is implemented.
- The Wall Street Journal’s Richard Rubin explained one simple problem with the “billionaire tax”: it depends on stock prices.
Author’s Take
A tax on unrealized capital gains is unworkable and unconstitutional. What happens when a billionaire loses capital wealth? Do they get a tax credit?
Musk is right that we should be concerned about the eventual expansion of such a tax. The Alternative Minimum Tax was implemented as a brash reaction to a report of 155 families who had paid no tax at all in the late 1960s. Before the 2018 tax cuts, roughly 5 million households were affected by the AMT.
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© Dallas Gerber, 2021
