Biden Administration Proposes Taxing Billionaires’ ‘Theoretical Income’ to Pay for Spending Bill

Treasury Secretary Janet Yellen (C) listens to President Joe Biden during a hybrid meeting
Chip Somodevilla/Getty Images

U.S. Treasury Secretary Janet Yellen proposed taxing billionaires’ unrealized capital gains to fund President Joe Biden’s $2 trillion spending bill — a bill which the president has claimed costs $0.

During an interview with CNN on Sunday, Yellen touted the idea of taxing the unrealized capital gains of the wealthiest 1 percent, though she claimed the measure would not count as a “wealth tax.”

She said:

Um, I think what’s under consideration is a proposal that Sen. [Ron] Wyden [D-OR] and the Senate Finance Committee have been looking at that would, um, impose, um, a tax on unrealized capital gains, um, on liquid assets held by extremely wealthy individuals, billionaires.

I wouldn’t call that a wealth tax, but it would help get at capital gains, which are an extraordinary large part of the incomes of the wealthiest individuals, and right now escape taxation until they’re realized. And often they are only realized in a death, benefitting from a so-called step-up of basis. 

So, it’s not a wealth tax, but, um, a tax on unrealized capital gains of exceptionally wealthy individuals. 

House Speaker Nancy Pelosi (D-CA), in contrast to Yellen’s claim, called the kind of tax Democrats are considering a “wealth tax.”

“We probably will have a wealth tax,” Pelosi told CNN on Sunday.

According to Americans for Tax Reform, the “mark-to-market regime” would force Americans to pay taxes every year on their liquid assets — things that can be sold easily — which include things like stocks, collectibles, tchotchkes. If the liquid assets rise in value — which could be influenced by factors like rampant inflation — the owner would be required to pay a tax on the perceived higher value, before it has even been sold for actual profit. The value may not stay at that high value, however, and it is unclear whether the proposal would make up for “unrealized losses.”

The advocacy group cited a May 2021 study, which found that Americans oppose taxing unrealized gains by a ratio of 3-1.

Researchers found in the survey with 5,000 participants:

Respondents strongly prefer to wait to tax gains on publicly-traded stocks until sale versus taxing unsold gains each year: 75% to 25%. Though this opposition is strongest among those who are wealthier or own stocks, all demographic groups oppose taxing unsold gains by large margins. This opposition persists and is often strengthened when looking across a variety of other assets and policy framings.

According to the report, participants largely rejected the idea “even after they heard arguments in favor of this kind of taxation,” even if they identified as Democrats, and even if they did not own stock themselves. 

“After all, taxes paid on these assets would have to come from other sources of income, not the asset itself,” Americans for Tax Reform noted. 

The study explained further:

There is significant concern that unsold gains are not yet real in a sense. As shown in Table 4, the word most distinctively associated with opponents is “actual”—as in, taxpayers have not “actually” received income “yet.” Likewise, they note that the stock has not yet yielded “cash,” or anything in the taxpayer’s “hand.”

The proposal reportedly “completely exempts middle-class workers and their families” and “included specific exclusion for retirement accounts and family homes and farms.” According to the Wall Street Journal, less than 1,000 of America’s wealthiest would likely be affected by the tax.

However, Republicans took to Twitter to warn of potential consequences that could result from an unrealized capital gains tax. Many seemed especially worried that the federal government could eventually move the goalposts and make everyday Americans pay the price for their unrealized gains.

“It would be naive to think that—in the long term—this will only target the wealthy. The Democrats want to get their foot in the door to tax unrealized gains. Then, they’re coming for your 401k plan,” Sen. Tom Cotton (R-AR) tweeted on Monday:

“If you tax unrealized gains, meaning you didn’t sell the stock and didn’t receive any cash, THAT IS A WEALTH TAX!!,” Rep. Byron Donalds (R-FL) said:

GOP strategist Tim Murtaugh commented on Sunday, saying taxing what is “basically theoretical income before it’s actually income is nuts.”

“Here’s how insane this is: Biden proposes to tax income people haven’t even received – it’s just theoretical income they WOULD get if they sold assets,” Murtaugh continued. “And Biden would do this to pay for his mammoth plan, which, by the way, he says costs ZERO dollars. No wonder he’s tanking.”

Moderate lawmakers Sens. Kyrsten Sinema (D-AZ) and Joe Manchin (D-WV) pared down Democrats’ $3.5 trillion spending bill to $2 trillion. The House is expected to vote on a separate $1 trillion spending bill in the coming week. 

Katherine Hamilton is a political reporter for Breitbart News. You can follow her on Twitter.


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