There aren’t enough rich people for Democrats’ “tax the rich” plan
In the face of unfavorable economic trends, congressional inertia, and the collapse of the Biden administration’s endorsement, Democrats are in despair. Tensions within the party have stalled the reconciliation bill on which they have placed long-held aspirations for new social programs and environmental regulations. Now the reality seems to be settling in: the party must pass Something if he hopes to avoid a failure in the midterm elections next year.
Senate Democrats took a step toward that outcome earlier this week by agreeing to fund some of the proposed spending with a new billionaire tax. As with the rest of the bill, the details remain vague, but the idea is to tax “unrealized capital gains” – in essence, the appreciated value of assets that have not been sold – of people who own more than $ 1 billion in assets or report income greater than $ 100 million for three consecutive years.
Short-term policy looks favorable. The very wealthy are not particularly popular with the public (although a majority view them with indifference), and the plan is apparently acceptable to Senator Krysten Sinema (D-Arizona), who has ruled out a marginal rate hike for income tax. By raising all taxes is probably not an optimal strategy before an election, squeezing around 700 billionaires is a pretty safe bet.
For this reason, however, the billionaire tax is more of a legislative gimmick than a serious proposition. On the one hand, it is not clear whether this is legal due to a constitutional requirement of proportionality between states for taxes, like this one, collected directly from citizens. The 16th Amendment makes an exception for income taxes. But are unrealized gains income? No money can be collected until the courts respond.
Second, the structure of the proposal makes it unlikely that it will enter into force as planned. In the current version, billionaires would have up to five years to pay the first installment. Given that Republicans are likely to take over Congress or even the White House during this time, there is a high likelihood that this assessment will be reduced or eliminated before it even comes to an end. Billionaires can easily wait until the end of the clock.
Last and most important, however: Taxing the rich doesn’t matter in tax matters. As my colleague from George Washington University, Kimberly Morgan, has pointed out, “No great welfare state is funded solely by taxes from the rich and corporate. The middle class is where the money is.
Democrats are hoping the tax could eventually be extended downward from billionaires to simple millionaires, according to reports. But even that won’t cover the bills for the expenses they want. There are simply not enough rich people, and you cannot have European benefits without European taxes on people who are not rich by a reasonable definition. It’s a dilemma Democrats don’t want to face.