Biden’s Wealth Tax – More Class Envy Rhetoric
A Commentary By Brain C. Joondeph
President Joe Biden, perhaps looking at the rising budget deficit along with his desire to spend far more money than the U.S. Treasury has in its coffers – not to mention his sinking poll numbers and dim prospects for his party in the November midterm elections – has proposed a wealth tax on the uber rich. The White House calls it the “billionaire minimum income tax” which is neither limited to billionaires nor a tax on income.
As the Wall Street Journal notes, “It’s a new tax on Americans with $100 million or more in assets whose effective tax rate in any year is less than 20% of their income.” Biden is off by an order of magnitude on the billionaire bit, like calling someone with $100,000 in net worth a millionaire.
The other deceitful part is calling it an income tax when it is actually a wealth tax. Per the WSJ, “The 20% minimum tax rate would apply both to ordinary income and the increase in the value of assets in a given year.”
If a business owner or entrepreneur grows their assets through hard work, reinvestment, or just good luck, all they have are unrealized gains, taxable when those gains are realized by selling the asset. And if the asset value rose quickly, it could also fall quickly, perhaps after the Internal Revenue Service collects its tax. Will the IRS then refund the tax if the asset suddenly loses value? Fat chance.
In addition, how will such a taxpayer pay the tax bill? Just because they have a $100 million asset, that doesn’t mean they have cash on hand to pay the tax man. What if the asset increased in value by $25 million? The Biden tax of 20% would require a $5 million check to the IRS, cash the entrepreneur may not have on hand if they are reinvesting profits into growing their business.
Just having an appreciating asset is not the same as having income. The business owner may be taking little in the way of salary, deferring that gratification until such time that their business has matured or is sold. Should an aspiring athlete, say a first-round draft pick, be taxed at signing day on their potential $100 million contract, even if they haven’t yet played a single game or earned any of that contracted salary? Yet that is how wealthy business owners or investors are being treated under the guise of “fairness.”
Taxing the rich is always a popular issue, especially when 99.9% of the population is not affected by this tax, at least not yet. If such a tax passes into law, you can be certain the $100 million threshold will drop and, over time, the not-so-rich will be subject to a wealth tax. Buy a hot stock or some cryptocurrency that pops in value, or start a business that quickly takes off, and you may find yourself with a fat tax bill that requires selling some of your new asset just to mollify the tax collector.
It’s always “pay your fair share,” especially ahead of an election, in this case the congressional midterms. Is that a winning issue? Are Americans taxed enough already – those first three letters, T-E-A, one of the meanings of the Tea Party, popularized in 2009.
Rasmussen Reports asked that question in a recent survey of American adults. They found that, “62% of American Adults believe they pay more than their fair share of taxes. That’s up from 51% last year, and exceeds the previous high of 59% in 2020.”
Only 21% of those surveyed believe they are not paying their fair share. What exactly is a “fair share”? 30%? 50%? 80%? Ask any proponent of a wealth tax what’s “fair” and they will hem and haw, without providing an answer.
Those who feel undertaxed are all free to voluntarily pay more taxes or claim fewer deductions. How many actually do that?
As NBC News reported, “Massachusetts Sen. John Kerry is docking his family's new $7 million yacht in neighboring Rhode Island, saving roughly $500,000 in Bay State taxes.” Multimillionaire Kerry is not alone. Other politicians, many of whom promote “pay your fair share”, take measures to minimize their personal tax bills.
Running in parallel with feeling overtaxed, a similar percentage of likely U.S. voters believe the nation is heading in the wrong direction, according to Rasmussen Reports. Most Americans live within their means and watching their country living far above its means, scapegoating those who through hard work and smarts are powering the US economic engine, is but one example of the country heading in the wrong direction.
Biden’s proposed $5.8 trillion budget, with a $1.3 trillion deficit, printing and spending money we don’t have, is not confidence inspiring. America now has a debt-to-GDP ratio of 130%, up from 105% during the last administration. For perspective, above 80% is the tipping point before economic calamity according to the Washington Post.
Cutting spending is not an option for the federal government, regardless of which party is in charge. We could inflate away the debt, but with current inflation, further money printing will push America closer to economic collapse, which these days seems to be a fait accompli.
So why not apply a wealth tax, punishing those who are powering the economy, killing the golden goose. That is exactly what the Biden administration is proposing and hopefully there is enough common sense in the halls of Congress to stop this poison pill dead in its tracks.
If not, the wealthy, armed with lawyers and accountants, will figure out a way to protect their wealth from this onerous tax, even if it means moving their assets to another country. So much for making America great. Class envy won’t right the sinking U.S. economic ship, but some basic economic common sense may – if there is any common sense left in Washington, D.C.
See Other Commentaries by Brian C. Joondeph.
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