More Than One Way to Tax a Billionaire

Three National Plans Plus One Local Initiative Recognize the Special Problem of Ultrawealth

By William Rice

There’s more than one way to tax a billionaire. But all methods reflect the reality that our current system is unequipped to ask our nation’s wealthiest residents to pay a fair share of taxes. In recent months, three plans to more fairly tax billionaires nationwide have been introduced in Congress. A fourth plan is the subject of a ballot-initiative drive in California.

All four plans would tax billionaires (and according to a couple of them, other hyper wealthy people) in a way they aren’t taxed now. Three would tax wealth, the fourth wealth growth. One tax would occur only once, the other three would be permanent. They would all make the tax system more effective and equitable; raise significant revenue for important public purposes; and diminish the power of billionaires to destabilize our economy, distort our society and endanger our democracy.

Following are details of the four plans, in ascending order of revenue.

California Billionaire Tax

Activists are collecting signatures to place the California Billionaire Tax on the state ballot this fall. It would levy a one-time, 5% tax on the wealth of California’s roughly 200 billionaires, raising an estimated $100 billion based on the billionaires’ estimated cumulative fortune of $2 trillion. Ninety percent of the revenue would be used to shore up California’s healthcare system–which is suffering from federal cuts to Medicaid and other healthcare services–with the rest used for education and nutrition assistance.

Taxing the wealth of the ultra-rich in addition to taxing their income is important because the nation’s wealth gap is much larger than its income gap. Also, wealth-derived income enjoys preferential tax treatment and can be manipulated to avoid income taxes altogether. The top tax rate on the two most prevalent forms of investment income–long-term capital gains and qualified dividends–is 20%, which is little more than half the 37% top rate on wage income. This discount on wealth income means that an idle investor can pay a lower income-tax tax rate than an emergency room nurse saving lives or utility worker fixing lines in a storm.

Billionaires Income Tax

The top Democrat on the Senate’s tax-writing Finance Committee, Ron Wyden (OR), along with two Democratic Representatives, Don Beyer (VA) and Steve Cohen (TN), have introduced in Congress the Billionaires Income Tax (BIT). It would impose an annual tax on the increase in asset values of billionaires and those with income that consistently exceeds $100 million.

Investment gains are taxed now only when the underlying asset is sold. But billionaires and other super-rich people don’t have to sell to benefit. They can obtain low-interest loans secured against their rising fortunes and live luxuriously tax-free. Whatever interest they pay is paltry compared to the tax they would owe if they sold their winning investments. Wall Street has a name for this strategy: buy, borrow, die. The dying refers to a loophole that allows appreciated assets to be passed along to the next generation without any tax being paid, then or ever, on the gain in value during the original owner’s lifetime.

Wyden’s bill would shut down this scam by annually taxing investment gains of the hyperwealthy whether or not the underlying asset was sold. The difference between such a tax and a wealth tax is that the Billionaires Income Tax would only be due in a year in which a billionaire got richer. Any year in which a billionaire’s net worth declined–no matter how rich he still was–he would be exempt from the BIT.

The BIT would raise an estimated $500 billion in revenue over 10 years. That’s money that could be used to make life more affordable for all us non-billionaires by investing in healthcare, childcare, housing, and more.

Make Billionaires Pay Their Fair Share Act

Sen. Bernie Sanders (I-VT) and Rep. Ro Khanna (D-CA) have introduced the Make Billionaires Pay Their Fair Share Act, which would place an annual 5% tax on the wealth of the nation’s roughly 1,000 billionaires. It would raise an estimated $4.4 trillion over 10 years. The plan would use part of that money to send $3,000 payments to everyone in a household making less than $150,000 a year; the rest would go to healthcare, housing, childcare and to ensure that every public school teacher is paid at least $60,000 a year.

Another reason it is important to tax wealth is that it is wealth rather than income that is passed down to later generations, creating economic dynasties. The federal estate tax is supposed to curb that concentration of money and power in the hands of a few fortunate families, but the estate tax has been repeatedly weakened over the past few decades. That weakening has come both from Republican politicians raising the amount exempt from the tax–in 2026, a couple can pass along $30 million without paying a dime of tax–and from the wealth-support industry continually carving out new administrative loopholes and stretching rules till they’re unrecognizable and ineffective.

Ultra-Millionaire Tax Act

Sen. Elizabeth Warren (D-MA), along with Reps. Pramila Jayapal (D-WA) and Brendan Boyle (D-PA), have unveiled the Ultra-Millionaire Tax Act. It would place a 2% levy on wealth exceeding $50 million and a 3% tax on billion-dollar fortunes. The bill–which has been introduced in earlier Congresses–has attracted almost 50 co-sponsors in the House and Senate, a record. The tax would raise an estimated $6.2 trillion over 10 years from just the richest 0.15% of American households.

Another argument for taxing wealth is that hyperwealth can be translated into political power through lobbying and campaign contributions. Whittling down billionaire fortunes a little through a wealth tax leaves less money available to attempt to warp our public policy and buy our democracy.

These four proposals to better tax billionaires, though different in details, all share the insight that the hyper wealthy have become a special burden on society and we need special methods to contain their power.