WASHINGTON — The president is trying to get the uber-wealthy to pay up with a new tax.
“A 20 percent minimum tax that applies only to the top one-hundredth of one percent," the president said Monday. "One-hundredth of one percent of the Americans will pay this tax.”
The tariff was unveiled in his 2023 budget proposal, and will apply to "households...with more than $100 million dollars."
Two big questions popping up are, would this include more than just income and would it only affect 700 people?
THE QUESTION:
Will millionaires and billionaires be taxed on more than just income?
THE SOURCES:
- Howard Gleckman- Senior fellow, Urban-Brookings Tax Policy Center
- Bill Hoagland- Senior vice president, Bipartisan Policy Center
- Samantha Jacoby- Senior tax legal analyst, Center on Budget and Policy Priorities
- Office of Management and Budget- 2023 Budget
- Department of the Treasury- "General Explanations of the Administration's Fiscal Year 2023 Revenue Proposals"
THE ANSWER:
WHAT WE FOUND:
President Biden is attempting to fix a loophole in tax law used by the ultra-wealthy.
"In many, many cases, the uber-rich have assets that never are taxed," Howard Gleckman, senior fellow a the Urban-Brookings Tax Policy Center said. "They're never taxed during their lifetime. They're never taxed when they die. And because of another strange provision of the tax law, that increase in the value of their assets, never is taxed to their heirs.”
The president is trying to change the definition of "income" for multi-millionaires and billionaires so that it's not just wages.
"The point of the tax is to address a long-standing flaw in the individual income tax, where much of the income of very wealthy households doesn't get taxed every year on their tax returns," Samantha Jacoby, senior tax legal analyst at the Center on Budget and Policy Priorities, said. "And that's because a large share of their income comes from capital gains, like the increase in the value of an asset like stock, or real property. And that income is only taxed on a sale, what's known as realization."
She continued, "so if a wealthy person just keeps holding on to their stock for years and years and decades, the increase in the value of that asset is never taxed, and if they hold it, hold it for their entire life, neither they nor their heirs will ever pay that tax. So this is trying to sort of broaden the definition of taxable income for this small subset of very wealthy people."
Right now, the president said, a firefighter or teacher ends up paying more than double the tax rate of what a billionaire pays.
"These individuals are paying eight percent of their income, versus the average American who pays 15 percent, and that's what they're trying to close in terms of the gap," Bill Hoagland, senior vice president at Bipartisan Policy Center said.
Our experts say this proposal would not just tax income, but also any increase in value of the things you own—even if you don’t sell them. It’s called “unrealized capital gain.” So, If you made more than $100 million in income and unrealized gains, you’ll face a minimum 20 percent tax under this proposal.
Gleckman gave this basic example: let’s say a person making more than $100 million buys a stock for $10. If It jumps to $100 in a year, that person would pay tax on that $90 dollar increase in value. If the stock grows to $110 the next year, they’d pay tax on that $10 gain.
"It's a wealth tax, it is a tax clearly on the individuals who have been successful in gaining a great deal of income over their career," Hoagland said. "But at the same time, they have created jobs and opportunities for many a million... Americans through the investments that they have created."
Our experts say that those assets won’t be double-taxed.
“Basically, if someone pays the tax [on] unrealized gains before they sell it, that amount will be credited to them when they later sell the asset,” Jacoby said. “And if the asset loses its value and they sell it at a loss, they can get a refund of the tax they already paid.”
Hoagland agrees.
“No, they should not get taxed twice," he said. "I can envision, however, that an asset’s unrealized gain at the end of the calendar year having been taxed (say it was $100) if in the next year that asset is sold, (say at $110) the realized gain ($10) from value it was last taxed (end of previous year) would be taxed at the regular capital gains rate.”
So we can Verify, no, the tax in this proposal won’t just include income.
Jacoby says, keep in mind, just because someone doesn't cash out their investments, that doesn't mean they can't "access the value of it."
"Somebody who owns a bunch of stock and wants to get some cash to finance a wealthy lifestyle, like, you know, buying yachts or whatever else, they can just get cash by taking out a loan and using their stock as collateral," she said. "It's not quite right to think...this type of income is not real, or 'paper gains'...saying that it's not real is like saying that someone like Jeff Bezos, or Elon Musk doesn't have anything of value because they haven't sold their stock, which is just not true."
Neither the budget nor the Treasury’s paper defines exactly what would be considered part of your "wealth." But Jacoby and Gleckman say things like vacation homes and expensive cars or art collections would likely be included.
THE QUESTION:
Will just 700 people be impacted by this tax?
THE SOURCES:
- Howard Gleckman- Senior fellow, Urban-Brookings Tax Policy Center
- Samantha Jacoby- Senior tax legal analyst, Center on Budget and Policy Priorities
THE ANSWER:
WHAT WE FOUND:
Lots of people are saying the wealth tax only applies to about 700 individuals. That's an often-quoted estimate of how many billionaires live in the United States.
Part of the confusion may have been in part because President Biden dubbed this the "Billionaire Minimum Tax."
"The president, unfortunately has described this as a billionaire's tax," Gleckman said. "If it were applied to billionaires, it would apply to about 700 people. But the proposal itself applies to people making $100 million or more, and we estimate that's about... 20,000 households."