Welp, that was quick.
On Wednesday morning, Democrats finally unveiled the details of their much-buzzed-about plan to make America’s billionaires pay taxes on increases in the value of their wealth, which they hoped would raise hundreds of billions of dollars to fund the climate and social spending bill they’ve been furiously negotiating. The idea, long popular with progressive policy wonks, was pitched as a way to raise revenues while staying clear of Sen. Kyrsten Sinema’s objections to more traditional tax hikes, and appeared to be making certain famous rich guys sweat in public.
By midafternoon, however, the proposal appeared to be dead, or at least barely hanging on to life, nearly sniped out of existence by the other moderate who rules Congress, West Virginia Sen. Joe Manchin.
To be honest, I had been working on a little explainer that I hoped would clarify what has often been described—unfairly, I think—as a hopelessly complex concept. But since the blueprint to soak billionaires is likely getting dumped straight from the printer to the shredder, you’re instead being treated to a little eulogy for an idea that, personally, I think deserved more than a few hours of consideration before being eviscerated.
That we were even talking about this concept at all was a bit surprising. Democrats had initially hoped to pay for the Build Back Better Act with more traditional tax increases. But they ran into opposition from Sinema, a self-styled “maverick” who has refused to abide any increases in the top tax rates for individuals or corporations. As a result, Democrats went digging for backup plans, and landed on a collection of slightly experimental, populist tax ideas meant to raise taxes on those who game the system to avoid them—an approach Sinema is apparently more open to. For instance, they’ve proposed a minimum 15 percent tax on corporations, based on the profits they report to shareholders, that Sinema blessed as a “commonsense step.”
The billionaire tax was a variation on a concept called mark-to-market capital gains taxation, which has often been described as a more practical (and less bumper sticker–ready) spiritual cousin of the wealth tax most famously advocated for by Sen. Elizabeth Warren. Here’s the basic idea. Today, if you buy a stock or bond (or some Bitcoin), and its value goes up, you only have to pay taxes after you actually sell the asset and pocket your profits. Mark-to-market would require investors to pay taxes on their paper profits each year, even if they didn’t actually sell any assets. If your portfolio rises in value, you owe the IRS. The Democrats’ plan, authored by Senate Finance Chair Ron Wyden, would have only applied to Americans with $1 billion of assets or at least $100 million of income for several years. If that’s not you and your stock portfolio went up, you’d be in the clear.
Wyden’s plan was meant to raise revenue while fixing an increasingly glaring inequity in the American tax code, which allows ultrarich men like Elon Musk, Mark Zuckerberg, and Jeff Bezos, whose fortunes tend to be tied up in appreciating stock, to live their lives and stack their wealth while paying little if anything to the IRS. All they have to do is avoid selling any shares while borrowing cash at favorable interest rates to live on. The savings are even greater if they can hold their assets until death: Thanks to the notorious stepped-up basis rule, today’s plutocrats can pass wealth on to their heirs without anyone ever having to pay taxes on the capital gains they’ve accrued. Making the likes of Musk, Zuck, and Bezos mark their vast stock holdings to market and pay taxes each year would have finally leveled the playing field—at least a little—between them and the rest of us.
It also would have taken a chunk out of their fortunes quickly. Off the bat, Wyden’s plan would have made today’s billionaires pay taxes on all the capital gains their assets had accrued to date. For a tech founder whose riches were tied up in the company they founded, it would have likely been akin to a large, one-time tax on their total wealth.
The Wyden plan was not simple. It had multiple layers to make the scheme workable and prevent abuse. It only applied mark-to-market rules to publicly traded assets, like stocks and bonds, where everyone knows the price, while creating a different set of reforms for taxing hard-to-value illiquid assets like shares in private companies. If billionaires lost money in a given year, they could carry them back and get a refund against some of the taxes they’d paid in the past, which makes sense conceptually but might have created the odd optics of the government sending out checks to Bill Gates in a recession.
Some have criticized the Wyden plan for allegedly being a complicated rush job. That’s in many ways unfair. Democratic staff had been refining it since at least 2019, when they released a white paper. And in a lot of ways, its pieces were less exotic than they might have seemed at first glance. Many of the plan’s features, including mark-to-market rules, already exist in other parts of the tax code. This would have just applied them to very rich individuals. That said, the tax was complicated, and few within the party had much time to digest its specifics.
The legislation also would have almost certainly faced legal challenges, based on the fact that the Constitution still bans “direct” taxes unless they’re divided between states based on population. Some legal scholars believe the Supreme Court would consider taxes tied to wealth such a “direct” tax, though others disagree, and the term has never really been properly defined.
But ultimately, it doesn’t seem likely the proposal will ever get that far. Powerful Democrats on the House Ways and Means Committee, which is responsible for writing tax legislation in the chamber, were already wary about the concept, which they viewed as untested and undervetted. But Manchin mostly seems to have done it in Wednesday during talks with the administration. He’d already signaled his feelings to reporters, calling the plan “convoluted” while giving a little tribute to the civic virtue of America’s billionaires. “I don’t like the connotation that we’re targeting different people,” he said. “There’s people that, basically, they’ve contributed to society, they’ve created a lot of jobs and invested a lot of money and give a lot to philanthropic pursuits.” In the same remarks, he murmured something about proposing a 15 percent “patriotic tax,” whatever the heck that means. Politico reports that “by midday Wednesday, the billionaire tax was out of the mix, according to multiple sources familiar with the talks.” Wyden says it’s still on the table, but when Manchin decides to become the Grim Reaper, well, we all know what that typically means.
So there goes at least two years of work and a lot of interesting thinking about how to fix the gaping holes in our tax code. Probably. That’s our Joe!