Proposed Billionaire Minimum Income Tax and An Ongoing Debate

11th April, 2022, 12.00am

Robin Zhu, Senior Correspondent, USA

President Biden has proposed a taxation plan targeting at the very wealthiest group of Americans, calling the Congress to pass a legislation that would require those people to pay at least 20 percent on all of their income. This plan is part of Biden’s budget for fiscal year 2023, and it causes lots of disputes but gains support from many voters as well.

The purpose of this progress tax is to make the taxation policies fairer and improve the U.S. economy. Traditionally, rich people usually try to avoid or lower taxes. According to a White House report, last year billionaires paid an 8.2% tax on average, which is far lower than that of middle class. The plan will ensure that people who own assets that are worth more than $100 million have to pay at least 20% of their full income each year. By estimation, this may help reduce the government’s deficit by $360 billion in just a decade. One big difference between the current tax laws and this proposal is that, under the new circumstance, wealthiest people have to pay taxes on their “unrealized” income as well. In other words, they have to pay the tax even if they don’t have a capital gain realized by selling a stock or share of a company, etc. That means, rich people can no longer avoid taxes by keeping their income unrealized through a portfolio in the stock market or a real estate that’s unsold.

There are many disputes over the tax proposal. People who mostly hold illiquid assets, or unrealized income, argue that it’s unreasonable for them to pay the tax when they haven’t made any capital gain yet. However, this proposal would require them to report their overall wealth and gains to the Internal Revenue Service (IRS) each year. They don’t have to pay the tax until they realize those income, but they’ll be charged with a deferral fee each year if they don’t pay the tax.

Although this proposal only applies to a tiny group of Americans, roughly 20,000 households, about 0.01% of Americans, it’s very unlikely to be passed in Congress within a short period of time. Since the plan is mostly supported by Democratic voters, there are still many moderate lawmakers who are hesitated about the huge tax reform. Besides, there are voices against the proposal saying that this would put too much pressure on the IRS and the taxpayers, especially when it comes to the calculation of unrealized income that is usually hard to measure. Some scholars also doubt on the constitutionality of this proposal if it becomes a law.

The Billionaire Minimum Income Tax has become a key policy priority among the Democratic Party, but there are also objections within the party itself. As Democratic Senator Joe Manchin mentioned, this policy was a “tough one”, and he rejected this idea, preferring other methods of taxation on the very wealthy group. Nevertheless, the idea of taxing unrealized income has become popular and will continue to be discussed in politics in a foreseeable future.