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Why Congress is taking a closer look at how billionaires do — and don’t — pay taxes

The public supports efforts to close loopholes that let the very rich skip taxes. What could that mean for public programs?

Amazon founder Jeff Bezos attends an event at a Texas spaceport.
Jeff Bezos, founder of Amazon and space tourism company Blue Origin, participates in post launch briefing from its spaceport near Van Horn, Texas, on July 20, 2021.
Tony Gutierrez, Associated Press

President Joe Biden in late October announced his $1.75 trillion Build Back Better Framework, which includes billions of dollars each for child care and preschool, the child tax and earned income tax credits, home care, health care, affordable housing units and clean energy and climate investments, among other commitments.

He proposes paying for the framework by closing loopholes and increasing taxes on wealthy corporations and individuals.

The funding plan does not include what’s been billed as a “billionaire’s tax,” which would levy taxes on unrealized capital gains for approximately 700 extraordinarily rich Americans. Instead, he targets those who make at least $10 million with a surcharge.

But the idea of imposing a billionaire tax is not entirely dead and public approval for making the very wealthy pay more taxes has been strong, according to experts and media reports.

“The impulse to impose more tax on billionaires is clearly gaining momentum and debates about how best to do it are intensifying,” wrote Sarah Kessler of The New York Times in the DealBook newsletter.

What the millionaires want

The president’s proposal would put a surtax of 5% on those who have incomes above $10 million. For those with incomes above $25 million, the surtax would increase another 3%. Experts say about 20,000 people — the vast majority millionaires, not billionaires — would be subject to the surtax.

The Biden proposal also promises reforms that would “stop rewarding companies that ship jobs and profits overseas” and would encourage corporate investment be put into improving companies, rather than buying back stock to consolidate power and ownership.

But some warn that it’s possible for billionaires to avoid the surcharge by holding their wealth in capital gains and borrowing against it. That concern helps explain support for a potential billionaire’s tax. The collective wealth of billionaires rose by 70% during the pandemic, according to The New York Times, but until they cash out those gains, it’s typically not taxed.

Even millionaires want to tax the super-rich.

Some 250 millionaires signed a letter to Democrat congressional leaders dated Nov. 1 urging them to reform the tax code to make billionaires pay their “fair share” of taxes. Under the banner of three groups — Patriotic Millionaires, Responsible Wealth and Americans for Tax Fairness — they wrote that “we have a rare opportunity to reform our broken tax code that has for far too long given the very wealthiest ways to avoid paying their share.”

They addressed the letter to House Speaker Nancy Pelosi, Senate Majority Leader Chuck Schumer and the chairmen of the House Ways and Means Committee and the Senate Committee on Finance.

The millionaires called the Biden’s framework a “momentous investment in working families” and said the billionaire tax is a way to accomplish needed tax reforms that would make the system more equitable.

They also warned that if Congress doesn’t act, “billionaires will continue to be allowed by Congress to pay far less than their fair share of taxes. Some will still be allowed to pay zero in income taxes despite enjoying soaring investment gains. Moreover, we will miss an historic opportunity to further strengthen the fiscal responsibility and civic unity of the United States.”

Here’s how the millionaires say billionaires gain unfair advantage: “Often billionaires hold the majority of their wealth in stock of very profitable multi-billion-dollar corporations and derive their primary source of income from their rising stock value. Those investment gains are not taxed unless the underlying assets are sold, which billionaires don’t need to do because they can live off low-cost loans secured by those rising asset values. And when their fortunes are passed along to their children, a lifetime of investment gains simply disappears for income tax purposes.”

The group cited a report from ProPublica showing that, in some years, billionaires including Jeff Bezos, Elon Musk and Michael Bloomberg don’t pay any federal income taxes.

“We support tax reforms that ensure high-wealth individuals like us pay our fair share, such as those included in the Build Back Better Framework: a new surtax on millionaires and closing two major loopholes that owners of pass-through businesses use to significantly reduce contributions to the common good. We support these reforms because the country needs more revenue to make vital improvements in healthcare, education, childcare, housing, climate response and more,” the letter says.

A bill takes aim at billionaires

Unlike Biden, Sen. Ron Wyden, an Oregon Democrat, took direct aim at the richest Americans in a new bill. His proposed legislation would force taxpayers making more than $100 million a year for three years in a row or those with more than $1 billion in assets to pay taxes on unrealized capital gains.

Wyden set the tax rate at 23.5%, just above the capital gains tax rate of 20%. The proposal allows not only taxation of gains on assets like stocks, but also deductions for losses — which could be carried back for up to three years in some situations.

“There are two tax codes in America,” Wyden said in background material. “The first is mandatory for workers who pay taxes out of every paycheck. The second is voluntary for billionaires who defer paying taxes for years, if not indefinitely.”

According to the Congressional Budget Office, in 2016, capital gains made up 41% of the money the top 1% of taxpayers brought in, but accounted for less than 3% of income for the bottom 80% of earners.

CBSnews.com said critics of a billionaire’s tax worry it could open the door to higher taxes on others, as well. Meanwhile, ProPublica reported recently that the richest Americans have a “true tax rate” that is close to zero.

Under a billionaire tax, if an investment that was worth $10 million doubled in a year, the billionaire would pay taxes on the $10 million gained, according to CBS. A billionaire could choose to spread out the tax payment due the first year over five years.

If a billionaire sold a piece of property, he or she would pay usual taxes and a “deferred recapture amount,” which means the amount of interest on the taxes that were deferred while they had the property. They could treat up to $1 billion of a tradable stock in a single corporation as a nontradable asset, so they could maintain a controlling interest in a successful company they founded.

Billionaires don’t seem keen on the tax. Billionaire investor Charlie Munger, who CNN called Warren Buffett’s right-hand-man, called the proposal “literally insane” in an interview. And CBS quoted a tweet by Tesla founder Elon Musk — the world’s richest person, with an estimated $288 billion worth — who said that “eventually they run out of other people’s money and then they come for you.”