Monday, April 4, 2022




I know, it’s a stiff competition. But the “billionaire tax” that is part of the Biden administration’s proposed budget is astonishingly dumb. This is how the Wall Street Journal describes it:

Under the proposal, households worth more than $100 million that don’t pay at least 20% in tax on a combination of their standard reported income and their gains on unsold assets such as stocks would owe additional tax until they have paid the new minimum 20%, according to the White House fact sheet.

So apparently, if you are wealthy you have to start by figuring out whether your household’s net worth is more or less than $100 million. If your wealth consists in large part of closely held companies, real estate, fine arts and similar investments, this will be a matter of opinion and endless grist for litigation. But let’s assume you get over the magic threshold.

The essence of the proposal is to force some taxpayers to pay income taxes on any appreciation in assets they hold. The plan apparently applies to interests in family businesses and other closely held corporations, which are notoriously hard to value. Does it apply to real estate and other illiquid assets? Apparently so, although there are “special rules for illiquid taxpayers.”

Apart from its unworkability, the fundamental problem with this plan is that it seeks to impose the income tax where there is no income. Asset values rise and fall, sometimes dramatically–in both directions. An investor typically holds assets for a period of time until he decides to sell. At that point, he has either a gain or a loss that is relatively easy to calculate. It is axiomatic that you haven’t made any money on a stock until you sell it, but the Biden proposal senselessly ignores this elementary principle.

The Biden plan raises the obvious question, what happens when asset values fall? Next time the stock market crashes or real estate values decline, will the federal government write checks to (only) the richest Americans to cover some portion of their paper losses? Will they get refunds of amounts they have paid on appreciation that has now gone up in smoke? I suppose not, which exposes the gross unfairness of the Biden plan.

Not to worry, though: presidents’ budgets are pretty much meaningless, and there is zero chance that this farcical proposal will become law. It is merely one more indication of the desperation with which Democrats are anticipating the midterm elections. The demagogic Democrats want to align themselves with the people, in opposition to billionaires, even though in fact, most billionaires who participate significantly in public life are Democrats. Does anyone remember the last time Wall Street backed a Republican presidential candidate?

It might be fun for Mitch McConnell to bring this part of Biden’s budget plan on for a vote in the Senate, and encourage all Senate Republicans to vote for it. The consternation this would cause in Democratic Party ranks would be worth the price of admission.

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