“Under current law, when an American worker earns a dollar of wages, that dollar is taxed as they earn it,” according to a White House fact sheet released Saturday, which notes that many wealthy people pay lower tax rates than middle-class workers. “But when a billionaire earns income because their investments increase in value, that gain is too often never taxed at all.”
Titled the “Billionaire Minimum Income Tax,” the proposal only applies to the top .01% of Americans, with more than half the revenue coming from households worth more than $1 billion. It is expected to raise $360 billion in the next decade.
The measure would allow the wealthy who are paying less than the 20% threshold to spread out the “top-up” levy on unrealized income over nine years. They would then have five years to make the top-up payments on new income going forward, which would also let them smooth out yearly variation in investment income.
The wealthy who don’t have liquid funds to cover the tax could opt to pay later with interest. And those already paying a tax rate of at least 20% on their total income, including unrealized appreciation, would not be affected.
Paying for spending plans
It’s unclear whether Biden’s latest proposal is part of the discussions on Capitol Hill and whether it would receive support from all Democrats in the Senate, which would be needed to pass a spending bill without Republican votes. Sen. Kyrsten Sinema, a Democrat from Arizona, has also balked in the past at raising taxes on the rich and corporations.
Boosting taxes on the rich
He also called for increasing taxes on long-term capital gains on those earning more than $1 million, as well as taxing unrealized capital gains at death.
Also, he wanted to raise the corporate tax rate from 21% to 28%, but not as high as the 35% top rate that existed before the Republican tax breaks.
Under that bill, the wealthiest Americans would have paid a 5% surcharge on income above $10 million and an additional 3% levy on income above $25 million.
It would also have put in place a 15% minimum book tax on the corporate profits that large companies report to shareholders, not to the Internal Revenue Service. This would have applied to companies with more than $1 billion in profits. The legislation also included a 1% surcharge on corporate stock buybacks.
The White House budget released Monday includes two earlier corporate tax proposals — raising the tax rate to 28% and levying a 15% minimum book tax.
Sparing the middle class
But most economists also assume that workers would eventually bear some of the burden of an increase in the corporate tax rate. While workers would not see a higher income tax rate, their after-tax wages could be lower if the corporate tax rate is increased.