Arrogant businessman holding cash money and taking selfies with his smartphone
During the State of the Union, President Biden mentioned one of his pet projects: a “billionaire tax.”
“Reward work, not just wealth,” he said. “Pass my proposal for a billionaire minimum tax. Because no billionaire should pay a lower tax rate than a schoolteacher or a firefighter.”
It sounds great to many. But is it? Or does this smack of performance, of talk more than transformative action, like the “renters bill of rights” was a crafted sound bite that didn’t address the conditions causing the ongoing problem.
The presumption behind the phrase “billionaire tax” is that not only do really wealthy people get away with a lot — and they certainly do — but that some simple fix will change everything.
The details of the administration’s plan is that “the very wealthiest Americans pay a tax rate of at least 20 percent on their full income, including unrealized appreciation.”
Most of that would be the unrealized appreciation, because the wealthiest people don’t need to take significant amounts of cash. They have income in the form of assets that keep generating more money and then borrow against the assets for spending money. They get great rates, meaning they pay far less than taxes would be, and they keep ownership of the assets that continue to generate more.
Trying to tax unrealized appreciation means taxing the value of assets that someone holds but hasn’t sold. The value is usually determined by the market, or how much something would sell for. But that is not a hard and fast figure.
The tax of just deciding what the unrealized appreciate of assets is truly worth would be monumental. Then there would be massive legal fights that would take years, waged by people of vast resources who could put up such a defense that the specific government budgets, time, and personnel available to keep up would be inadequate.
There aren’t even enough IRS agents to perform regular full audits on the rich. Where are the people who will do all this other work? As I said last April, maybe the wiser approach would be to tax what the rich borrow. It would be like a value-added tax, only on the people who can afford to pay it.
As the administration says about the plan, “President Biden’s Billionaire Minimum Income Tax will make America’s tax code fairer and reduce the deficit by about $360 billion in just the next decade.” That is $36 billion a year, or 51,428,571.43 per billionaire, which, at 20% of what they make, would mean each on average was bringing in more than $257 million in asset growth.
Now, $360 billion in a decade is a lot of money. But to say that’s off the deficit over that period of time is wrong. The deficit is spending exceeding national income per year. The deficit for this year alone is $421,409,781,344, far larger than the ten years of estimated billionaire tax collections.
The country needs to spend less and bring in more. While billionaires absolutely should pay a fair share, they aren’t the answer.
But pointing at billionaires as some magic solution ignores the number of millionaires as well. At the end of 2020, Credit Suisse estimated the number at about 22 million. Get each one to kick in an extra $2,000 a year and the resulting annual $44 million — not a one-time amount that took a decade to raise from the billionaires and was supposed to be such a big deal.
Or corporations. There is a lot of debate over how much corporations effectively pay in taxes. In the graph below, you can see the blue line, which is the corporate tax revenue received by the federal government, and the red, which is corporate profits after paying taxes, with the graph from the Federal Reserve Bank of St. Louis and the data from the U.S. Bureau of Economic Analysis.
Corporate profits after tax versus federal corporate tax receipts.
These represent taxes paid and profits kept by quarter. In the last quarter where there’s data for both, which is the first quarter of 2021, federal tax receipts on corporate income were $273.6 billion. The profits after tax, almost $2.6 trillion.
Think there might be enough in the more than $10 trillion a year in after-tax profits at this point to chip in a reduce the deficit to, say, nothing?
Yes, the country has to be smarter about how much it pays. But it also has to tax enough. And that means much more than billionaires.
