Joe Manchin Can’t Shoot Down the Logic of a Wealth Tax – The New Yorker

The U.S. Senate has long been known as a place where progressive policy proposals go to die, and this week it outdid itself. On Monday, the Biden Administration, as part of its 2023 fiscal-year budget, proposed directly taxing the wealth of America’s mega-rich for the first time. Under the new Biden plan, households with a net worth of more than a hundred million dollars would be obliged to pay a federal tax rate of at least twenty per cent of their annual taxable incomes. In addition—and this is the most novel element—it proposes that taxable income now be defined to include unrealized capital gains, stocks, bonds, and other liquid assets. Under the current tax system, these unrealized capital gains go untouched by the I.R.S.—even as many billionaires use their appreciating assets as collateral for bank loans that finance their lavish life styles.

“President Biden is a capitalist and believes that anyone should be able to become a millionaire or a billionaire,” the White House said in unveiling the proposal. “He also believes that it is wrong for America to have a tax code that results in America’s wealthiest households paying a lower tax rate than working families.” The economic and political logic of this argument, which the über billionaire and would-be tax reformer Warren Buffett first made almost twenty years ago, is unimpeachable. In 2021, according to the White House’s calculations, America’s seven hundred billionaires will likely pay federal tax, on average, of just eight per cent of their total income, including unrealized capital gains. Thanks to a leak of Internal Revenue Service data to ProPublica last spring, we also know that, in some years, billionaires like Jeff Bezos, Elon Musk, and George Soros have paid no federal taxes at all. By contrast, the average tax rate for all taxpayers in 2019 was 13.3 per cent, according to the Washington-based Tax Foundation.

Presumably for marketing reasons, the Administration didn’t label its new plan a wealth tax, instead calling it a “Billionaire Minimum Income Tax.” But if the White House believed that this wordplay would improve the proposal’s chances of being enacted on Capitol Hill, it was quickly disappointed. On Tuesday, barely twenty-four hours after the proposal was unveiled, Senator Joe Manchin, of West Virginia, shot it down, telling The Hill, “You can’t tax something that’s not earned. Earned income is what we’re based on.” In terms of history and economics, this assertion made no sense. Taxes on wealth, not earned income, go back at least as far as ancient Greece. More recently, some countries, such as France, have run into difficulties successfully implementing such taxes, but other countries still have them, including Norway, …….