The great pamphleteer of the American Revolution, Thomas Paine, had much more on his mind than mere independence from the British. Paine spent his life, a just-published new analysis of his work notes, advocating for a democratic “commonwealth” that shared the wealth, a new society that freed all people “from domination both political and economic.”
An important step toward that society, Paine believed, would be a wealth tax, a levy on grand private fortune. Today, over two centuries later, we may finally have a President of the United States who’s taking Tom Paine to heart. The newly unveiled Joe Biden budget is proposing that America’s richest start paying Uncle Sam what amounts to a wealth tax.
The Biden administration is actually calling its proposed new levy a “Billionaire Minimum Income Tax,” not a “wealth tax.” But the administration is most definitely putting forward a tax on what billionaires would all consider their wealth.
The new Biden tax proposal would apply to Americans worth over $100 million. These wealthy — essentially America’s richest 0.01 percent — would be expected to pay an annual tax of at least 20 percent on their taxable income. But included in that taxable income would be any increase in the value of liquid assets — stocks and bonds, for instance — that top 0.01 percenters might own.
Annual increases in the value of these liquid assets — the core of every billionaire fortune — currently go totally untaxed until their wealthy owners decide to sell these assets off. That gives “ultra-high-net-worth households,” the Biden White House points out, the ability to have their gains “go untaxed for decades or generations.”
Under the Biden proposal, wealthy households already paying a tax of at least 20 percent on their “full income” — the dollars they’ve gained from both standard taxable compensation and unrealized gains on their liquid assets — would owe no additional tax. But almost all of America’s super rich would owe additional tax since their fortunes are regularly generating massive annual untaxed gains.
Let’s take the example of a CEO mogul holding shares of stock worth a clean $10 billion. Let’s assume, for the sake of this exercise, a 10 percent annual growth in the value of our mogul’s stock holdings, a conservative estimate given recent Wall Street history. Last year, for instance, the S&P 500 rose 26.9 percent.
Let’s also assume that this same mogul pockets $20 million in annual CEO pay. After taking various deductions, the mogul turns out to owe 20 percent of this $20 million in annual income tax.
But our mogul would also owe tax, if Congress adopts the Biden budget, on the 10 percent annual gain in the mogul’s stock holdings. Adding in this stock gain would bring the mogul’s total taxable income for the year, under the Biden tax plan, to $1.02 billion, with the $20 million from the mogul’s CEO pay package added to the $1 billion the mogul’s shares of stock have gained in annual value.
The mogul would have to pay, under the Biden plan, at least 20 percent of this $1.02 billion — $204 million — in tax. Under existing law, our mogul would owe just $4 million in tax.
Such a tax increase, venture capitalist Kevin O’Leary opined this past Monday on CNBC’s Squawk Box, would be simply “unAmerican.”
Such an increase, retorts the Biden administration, would be simple fairness.
“Under current law, when an American worker earns a dollar of wages, that dollar is taxed as they earn it,” the White House explains. “But when a billionaire earns income because their investments increase in value, that gain is too often never taxed at all.”
America’s over 700 billionaires, the administration adds, last year saw “their wealth increase by $1 trillion.” Yet current law has billionaires paying “just 8 percent of their total realized and unrealized income in taxes.”
“A firefighter or teacher,” adds the White House, “can pay double that tax rate.”
The Biden tax plan is actually taking much the same approach that Tom Paine took with the wealth tax proposal he first put forward in 1792. Paine keyed his tax, as Biden’s proposal does, to the gains the wealthy realize from their wealth, not the total value of that wealth. As a result, observe tax analysts Jeremy Bearer-Friend and Vanessa Williamson in their new paper, The Common Sense of a Wealth Tax, some scholars believe we can describe Paine’s tax plan as either “an income tax or a wealth tax” — the same definitional option we now have with Biden’s new tax plan.
George Washington University’s Bearer-Friend and Brookings senior fellow Williamson have converted the tax brackets and rates of Paine’s plan into 2020 U.S. dollar terms. Under Paine’s plan, they find, households of means collecting just over $15 million from their wealth would pay $1.4 million in total tax. Households making nearly $50 million off their wealth would pay about $23 million in tax. And households gaining more than $50 million from their wealth would face a 100 percent tax on all their gains over that $50 million.
In other words, Paine was essentially calling for a limit on the wealth any rich people could annually add to their fortunes. “Roughly speaking,” Bearer-Friend and Williamson’s research concludes, Paine’s 100 percent tax bracket — if enacted today — would apply only to billionaires.
Under Paine’s plan, the two analysts go on to point out, billionaires who experienced a 5 percent annual return off wealth of $2 billion would owe $73.3 million in taxes, the equivalent of about a 3.5 percent tax on their personal fortunes. That 3.5 percent rate, Bearer-Friend and Williamson note, would run remarkably close to the tax rates that appear in wealth tax proposals that Senators Elizabeth Warren and Bernie Sanders have advanced in recent years.
The Biden administration tax plan doesn’t put that big a bite on grand private fortune. But the Biden plan does represent a significant step toward taxing the wealth of America’s wealthiest, says go-to global expert on economic inequality Gabriel Zucman. This University of California-Berkeley economist reminds us that mega-billionaires Jeff Bezos, Warren Buffett, and Elon Musk together paid just $1.5 billion in federal income taxes over the five-year period that ended in 2018. Under the Biden proposal, this trio would pay “at least” 100 times more in taxes over the next nine years.
Tom Paine’s tax policy priorities, Bearer-Friend and Williamson suggest, “speak directly to the 21st century challenges of the rise of oligarchic wealth concentration and the deteriorating conditions of American democracy.” Paine believed that extreme wealth undermines “the ability of citizens to choose their leaders.” Freedom, in Paine’s view, “meant both lifting the poor from penury and dependence” — so they could participate as full-fledged citizens — and eliminating the “vicious influence” of fiercely concentrated wealth.
Tom Paine had it right.
Sam Pizzigati co-edits Inequality.org. His latest books include The Case for a Maximum Wage and The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970. Follow him at @Too_Much_Online.