The $5.79 trillion budget plan Joe Biden submitted to Congress yesterday was more notable for what it didn’t include, rather than what it did. There were no line items on the environment or education – key pillars of his ‘Build Back Better’ agenda – but it did call for a new minimum tax requiring ‘billionaires’ to pay at least 20 per cent of their income in taxes, including on the gains on investments that have not been sold. This will, apparently, reduce the government deficit by $360 billion over the next decade.
The President is in a tight spot. Since the turn of the year, his approval ratings have fallen to their lowest levels since he took office, with voters justifiably concerned by the nation’s largest inflation spike in four decades. The Biden administration believed it could take an overheated economy and run it hotter. They were wrong, they’re getting burned, and now they’re using hostility towards the super-rich as an analgesic.
But the term ‘billionaire’ is notoriously difficult to measure – as we can see from the fact this tax on ‘billionaires’ will actually be levied on people with a tenth of that fabulous sum. Taxing unrealised gains is an effective wealth tax, with likely negative consequences for financial markets (as the wealthy are compelled to sell assets to cover tax bills) and inherent unfairness. If their stock is worth $200 million and the government demands $40 million, but their shares later collapse, would they get their tax back? Fat chance.
Worse would be the dynamic effects on the economy. Taxes never change in isolation: behaviours change, too. Individuals may work fewer hours or retire sooner, and look at other ways to legally reduce their tax burden, including domiciling abroad.
Bashing billionaires is nothing new.