As President Joe Biden unveiled the White House’s new budget last week, a lot of ideas that previously did not make it out of Congress, and revises a widely unpopular wealth tax. Now called the “Billionaire minimum income tax,” would tax more than just billionaires, and applies to more than just income.
Details
The new tax would be for Americans with over $100 million or more in assets whose effective tax rate is less than 20% of their income. Taxpayers in these brackets, however, already pay a 23.8% tax rate on capital gains and 37% on ordinary income with the average total tax rate for the top 1% being 25.6% (as of 2019). So how would this work?
The 20% minimum tax would apply to both ordinary incomes as well as the increase in the value of assets in a given year. This means that the 25.6% average as of 2019 would drop in percentage if you experienced large amounts of “income” through your unrealized capital gains. This is the differentiating factor between the newly proposed wealth tax, and the wealth tax previously proposed by the White House.
Not all of the details of the newly proposed tax have been fleshed out yet, but it seems as if taxpayers would have a period of nine years to pay the 20% tax on growth in assets from when they were accumulated. Past this, there would be a 5 year period to pay the tax on unrealized gains.
New Tax
While this tax is still in the early stages of its life, and may not come to fruition, it could open up new doors for the Treasury Department to collect revenue. A large fear had with passing this bill is that it would open up the door for the middle class to eventually become taxed on their unrealized gains, especially in a time where there has been persistent asset inflation occurring.
Wrap Up
We will be following this tax as it progresses through the political pipeline to see if it does come to life. There is still bound to be a lot of controversy surrounding it no matter which way it falls. Do you think there should be a wealth tax put in place?
Questions? Comments? Feel free to Call DSJ at 516-541-6549 for more information.