Taxing the Rich Dudes — Part II

A week or so ago I posted Robert Reich’s column on taxing the wealthy.  At the time, I thought the odds of any such legislation passing were slim-to-none, but today Mr. Reich is back with a bit more optimism, so … maybe, just maybe the time is coming when we will stop bowing at the feet of the wealthy and start expecting them to be held accountable for paying their fair share to keep this nation rolling.  Heck, if the wealthy paid their share, we could eliminate the federal debt within a year!

Why Biden’s plan to tax the super rich is moving from unlikely to likely

And why it’s really really important

Robert Reich, 5 April 2022

America is on the cusp of the largest inter-generational transfer of wealth in history. As wealthy boomers expire over the next three decades, an estimated $30 trillion will go to their children. Those children will be able to live off of the income these assets generate, and then leave the bulk of them – which in the intervening years will have grown far more valuable – to their own heirs, tax-free. After a few generations of this, almost all of the nation’s wealth will be in the hands of a few thousand family dynasties.

Unless Joe Biden’s new tax plan is enacted — the odds of which is moving from unlikely to likely. I’ll explain in a moment.

Dynastic wealth runs counter to the ideal of America as a meritocracy. It makes a mockery of the notions that people earn what they’re worth in the market, and that economic gains should go to those who deserve them. It puts economic power into the hands of a small number of people who have never worked but whose investment decisions have a significant effect on the nation’s future. And it is antithetical to democracy.

We are well on the way. Already six out of the ten wealthiest Americans alive are heirs to prominent fortunes. The Walmart heirs alone have more wealth than the bottom 42 percent of Americans combined. The richest 1 tenth of 1 percent of Americans already owns almost as much wealth as the bottom 90 percent.

The last time America faced anything comparable occurred at the turn of the last century, in the first Gilded Age. Then, President Teddy Roosevelt warned that “a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power,” could destroy American democracy. Roosevelt’s answer was to tax wealth. The estate tax was enacted in 1916 and the capital gains tax in 1922.

Since then, both of Roosevelt’s taxes have been eroded by the moneyed interests. As the rich have accumulated more wealth, they have amassed more political power — which they’ve used to reduce their taxes. By now, the estate tax affects only a handful of super-wealthy families that are busily setting up “dynastic trusts” to circumvent what’s left of it. And the capital gains tax has been defanged by what’s known as the “stepped-up-basis-at-death” loophole. More on this in a moment.

Last week Joe Biden unveiled two tax proposals that would revive Teddy Roosevelt’s original vision, and could possibly slow or even reverse America’s march toward oligarchy: (1) a minimum income tax that Biden calls a billionaire tax but would in reality apply to households with a net worth of $100 million or more, and (2) a separate tax at death on gains from appreciated assets, even if the assets are not sold.

The odds are growing that at least one of these proposals will get through the Senate in April or May via “reconciliation” requiring only a bare majority (i.e., all fifty Democratic senators plus the vice president). I’m told Joe Manchin is mostly on board (which means the other Democratic holdout, Kyrsten Sinema, will sign on as well).

Let me go into a bit of detail on each:

(1) The minimum tax is a 20 percent levy on households with a net worth of more than $100 million, affecting the top 0.01 percent of earners. It would apply both to taxable earnings and to unrealized capital gains (the increased value of your assets), and would function as a kind of prepayment (analogous to withholding) of taxes that eventually would be owed upon the sale of appreciated assets or death.

For example, suppose someone named Mark Zuckerberg owns $100 billion of Facebook stock, for which he paid nothing when he founded the company, and has no other taxable income. For the first year under the Biden plan, he’d owe $20 billion in taxes even if he didn’t sell any Facebook shares. The next year, if his stock increased in value, he’d owe another prepayment equal to 20 percent of any increase in value beyond $100 billion. (There are other provisions to prevent the very wealthy from being taxed twice on the same income.)

The Treasury anticipates Biden’s new minimum tax would raise $360 billion in the first 10 years from America’s 20,000 richest households.  

(2) Biden’s second proposal would close the “stepped-up-basis-at death” loophole. Under today’s tax code, you pay capital gains taxes on the increased value of assets when you sell them. But if you pass your assets on to your heirs, they can sell them and not pay a penny of capital gains. In other words, you escape capital gains taxes by dying. They escape it by inheriting your wealth. (I remember years ago arguing that this loophole should be closed with then Treasury Secretary Lloyd Benson, who at one point pounded his fist on the table and exclaimed “death is an involuntary conversion!”)

That’s not all. Under current law, if heirs never sell these assets and they continue to gain value (as they almost certainly will), heirs can borrow against them to pay living expenses and then pass them on to their heirs, who won’t pay capital gains taxes either. Put this together with the unprecedented transfer of generational wealth about to occur, from rich boomer to their millennial children, and America’s oligarchy will become thoroughly entrenched in a small group of people who exercise all the power that comes with great wealth but have never worked a day in their lives.

Biden proposes simply to repeal the “stepped-up-basis-at-death” loophole. The value of assets would not be “stepped up” to their market value at the time of death. Their increased value would be subject to capital gains taxes as if they’d been sold before death.

Either of these tax reforms would be significant, and they fit nicely together. But if I were betting, I’d bet on the latter because Second President Manchin has sounded less enthusiastic about the first.

One thing we’ve all learned over the past fourteen months is not to rely on Manchin or on anything he says or commits to, so I’m not holding my breath. But if Manchin gives the green light, and Biden and the Democrats pull this off, it will be an historic rebirth of Teddy Roosevelt’s movement against dynastic wealth — perhaps Biden’s biggest single accomplishment. Taxing big wealth is necessary if we’re ever to get our democracy back and make our economy work for everyone rather than a privileged few.

28 thoughts on “Taxing the Rich Dudes — Part II

  1. This is an appearance of an attempt by Biden trying to tax the rich, but he knows it will never pass because most politicians have money – including his wife, son and himself.

    Liked by 1 person

    • The Biden’s money pales in comparison to some 700+ corporate executives who can claim billionaire status, but you may well be right that it will never pass. However, sooner or later people who’ve been working for $7.25 for years now will tire of seeing billionaires in their ivory towers not contributing even half of what they do and there will be a revolution of some sort.

      Liked by 1 person

      • To me, once a person gets over $5 million, putting the rich in different classes is moot. I was part of that lowly poor crowd, was angry about the rich, but raised my salary by working for it.

        Liked by 1 person

        • I largely agree with you … although I would say anything over $1 million. I cannot even fathom people like Elon Musk and Jeff Bezos whose net worths are in the billions of dollars. WHY??? Why would anybody sit on that much money when it could help so many people in so many ways? Like you, I’ve been part of the poor crowd and was even homeless for a short time. I struggled and survived. Those billionaires don’t know the meaning of the word “struggle”. For them, a struggle is deciding between Filet Mignon and Escargot, or some such.

          Liked by 2 people

          • At this point, on a social security budget and Biden’s massive inflation, prices are going up at an alarming rate – beef is out of the picture altogether!!

            Liked by 1 person

            • Well … Biden isn’t the one responsible for the increasing prices, and if he were, they would be confined to the U.S., but inflation is everywhere at the moment. It’ll come back down … but likely not until the war ends in Ukraine. Luckily for me, I’m not a huge fan of beef anyway and much prefer fish or chicken. 😉

              Liked by 2 people

  2. That’s not going to happen in the UK without a change at the top. The Chancellor talked up tax cuts, talked about we are all in this cost of living crisis together. The he flew out with his billionaire wife to one if their 14 houses, for 2 weeks sun in California…..

    Liked by 4 people

    • However……
      We now have the sight of our Chancellor having to back peddle.
      For like Caesar’s Wife…..
      Ah that Greasy Pole.
      Here’s a thought…..A while ago Sunak was looking far more favourable in the public eye than his fearless leader….just where did the leaks about Akshata’s ‘tax arrangements’ come from? (just thinking)

      Liked by 1 person

    • No, I don’t trust Manchin either, and I’m sure he has some secondary goal here, but given the composition of his state, West Virginia, which is the poorest in the nation as I recall, perhaps this is politically a wise move for him. I fear that if the wealthy keep getting away without paying their share, the bank will go bust and then our literal lives will be at stake. Imagine no healthcare, no food or housing assistance, no educational assistance … that’s where we’re headed if we don’t start making EVERYONE pay their fair share.

      Liked by 2 people

Comments are closed.