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US president Joe Biden needs money. Naturally he is going after the deepest, if most tightly stitched pockets: those of the ultra wealthy. Biden’s $5.8tn government budget proposes a minimum 20 per cent annual tax rate for billionaires on all income, including unrealised gains from asset appreciation.
This is a bold and unusual move. Typically, US taxes are levied against cash income: wages and profits crystallised by share or other sales. But times have changed.
The decade or so to 2021 was a golden era for wealth creation — and tax avoidance. The S&P 500 was seven times higher at the end of 2021 compared to its March 2009 low. That explosion in stock market wealth led to an effective tax rate of just 8.2 per cent for America’s wealthiest families, according to White House economists.
Central bankers helped stir the pot. Monetary stimulus inflated the bubble. Founders, tech entrepreneurs and other plutocrats were off the hook for big capital gains taxes since they could use their shares as collateral — borrowing at near-zero interest rates — rather than selling them.
Biden’s budget, which will help finance ramped-up defence spending, is not set in concrete. It faces legislative and constitutional challenges. But its bid to marry up the ultra-wealthy with the fiscal realities of a world wracked by massive sovereign debt is bound to strike a chord.
Biden is targeting households with net worth in excess of $100mn. But billionaires would shoulder the bulk of the $360bn to be raised in the next decade. Economist Gabe Zucman estimated that the top 10 billionaires including Elon Musk, Jeff Bezos and Bill Gates would collectively need to stump up $215bn.
Critics of wealth taxes fret that they inhibit entrepreneurship and risk-taking. They are tough to implement effectively, as shown by their chequered history in Europe.
Those are bad reasons to hold back. Academic research supports the grassroots belief that the ultra-rich are good at minimising tax payments to the societies where they make their money. A US wealth tax would represent a worthwhile work in progress towards a fairer split.
The Lex team is interested in hearing more from readers. Please tell us what you think Biden’s proposed wealth tax in the comments section below.
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