With President Biden’s announcement of new budget proposals on March 28, the nation is moving one step closer to what some are calling a “billionaire’s tax.” But there’s still a long way to go before such a tax provision becomes law.
Biden has previously supported a federal income tax increase on the wealthiest Americans. Now the idea seems to be gaining some traction in Congress.
Under the proposed plan, a 20% minimum tax rate would be imposed on all U.S. households worth more than $100 million. The vast majority of affected taxpayers would be comprised of billionaires.
Notably, the tax would apply to those who already don’t pay at least 20% on a combination of regularly reported income and gains on unrealized capital gains.
The White House estimates that this billionaire’s tax on fewer than 20,000 American households could generate about $360 billion in revenue over ten years.
This is hardly the first time that President Biden has tried to climb this hill. The last proposed legislation that included a tax on the wealthiest taxpayers, the Build Back Better Act, eventually petered out in Congress. But recent economic concessions by roadblocks like Senators Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ) have spurred more optimism for the new effort. It’s not clear if Manchin and/or Sinema will support a billionaire’s tax.
Currently, the top federal income tax rate is 37%, but many wealthy taxpayers effectively pay a much lower rate due to tax-saving techniques and deferral of unrealized capital gains. According to the Washington Post, the White House Office of Management and Budget and Council of Economic Advisers recently estimated that 400 billionaire families paid an average federal income tax rate of slightly more than 8% of their income between 2010 and 2018.
Billionaires paying tax at a rate below 20% would owe the difference between what they pay now and the 20% rate. Those above the 20% threshold wouldn’t face any additional tax liability. The amounts paid toward the billionaire’s tax would count toward whatever they owe once they have to pay the usual capital gains taxes.
“The Billionaire Minimum Income Tax will ensure that the very wealthiest Americans pay a tax rate of at least 20 percent on their full income,” said the White House prior to Biden’s announcement. “This minimum tax would make sure that the wealthiest Americans no longer pay a tax rate lower than teachers and firefighters.”
Thanks for reading CPA Practice Advisor!
Subscribe Already registered? Log In
Need more information? Read the FAQs
Tags: Accounting
