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Proposed And Updated Version Of Billionaire Tax



Billionaire Tax Proposal

Senate Finance Committee Chair Ron Wyden, D-Ore., unveiled an updated version of the Billionaires Income Tax, which would ensure billionaires pay more tax every year. According to the proposal, the Billionaires Income Tax would apply to taxpayers with more than $1 billion in assets or more than $100 million in income for three consecutive years.

Tradable assets like stocks would be marked-to-market every year. Billionaires would pay tax on gain and take deductions for losses on tradable assets annually. Billionaires would be able to carry forward losses, and, in certain circumstances, carry back losses for three years.

Non-tradable assets like real estate or business interests would not be taxed annually. When billionaires sell non-tradable assets, they would pay capital gains tax, plus an interest charge. The interest charge, or “deferral recapture amount,” is the amount of interest that would be due on tax owed if the asset had been marked to market each year and the tax had been deferred until sale. The interest rate is the applicable federal short term rate plus one point. The AFR is currently 0.22 percent, so the interest rate applied would be 1.22 percent.
The proposal contains rules to transition to the Billionaires Income Tax. For example, the first time billionaires’ tradable assets are marked-to-market, they may elect to pay the tax over five years. They may also elect to treat up to $1 billion of tradable stock in a single corporation as a non-tradable asset, which will ensure that the proposal does not affect the ability of an individual who founds a successful company to maintain their controlling interest. Additionally, the proposal contains rules to prevent avoidance of the Billionaires Income Tax.

A one-page summary of the Billionaires Income Tax is available here.

A section-by-section summary of the Billionaires Income Tax is available here.

Legislative text of the Billionaires Income Tax is available here.

Click Here To Go To The Billionaire Tax Proposal https://www.finance.senate.gov/imo/media/doc/Billionaires%20Income%20Tax%20-%20Section-by-Section.pdf 

What do you think about the Billionaire Tax Proposal?

We would like to see commentary from tax professionals.

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One thought on “Proposed And Updated Version Of Billionaire Tax

  1. This comment is based on the interpretation of the proposal found in this post. I don’t have a week to read and digest the 100+ pages of the proposed law. But, based on the description here:

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    The US currently has (in effect) separate tax systems for: Employees, small business people, those who live off investment income, Americans abroad, undocumented aliens, certain racial minorities (see the work of Dorothy Brown) and now a new tax system for billionaires is proposed. So, in America of today: Congress asks tell me who you are and we will tell you which tax system applies to you. (How can this be fair?) The proposed tax system for billionaires borrows from some of the most vicious aspects of the tax system for Americans abroad and would apply them to billionaires.

    Prospectively – The billionaires tax once is is up and running:

    Notably the billionaires tax (once it is up and running) is based on the concept of “fake income” – i.e. either no realization event or if there is a realization event an interest charge for deferral (think PFIC and the Foreign non-grantor trust rules). Taxation based on no realization event: This is a simple concept. They pay a tax (where does the money come from) on the increase in value from one year to the next (without any actual income). So, Congress will simply define the increase in capital value as income (even though its not). Deferral: For the assets that are not tradeable an interest charge is imposed in addition to the tax on the actual realized gain. This is exactly the same principle that is used in the PFIC and foreign nongrantor trust rules. (Americans abroad welcome billionaires to the hell of taxation on fake income.)

    Retroactively – Getting it up and running

    This is where it gets really good. This is clearly a retroactive tax on unrealized capital gains. How cool is that? It’s exactly the same principle as the 965 Transition tax that was part of the 2017 TCJA (right on down to being able to spread the payment over five years). Seriously you can’t make this kind of injustice up!

    In 1917 the Russian Tsars were simply shot and their assets were confiscated. The shooting was necessary only because Russia did not have a modern tax code that could be used to achieve the same result.

    Interestingly this is marketed as a tax on billionaires. In 2008 the 877A Expatriation Tax was marketed as a tax on billionaires that turned out to be a way that America could confiscate the non-US pensions of Americans abroad. (But, who cares about Americans abroad.) Make no mistake about it. This (like all the other US “class” taxes that become “mass taxes”) will work it’s way down to the middle class.

    Maybe the billionaires who live in America will follow the example of the Americans abroad of modest means who feel they must renounce their US citizenship. As it stands the billionaires can probably renounce now and keep some of their assets. That’s certainly better than staying in America and losing all of their assets.

    The fact that this proposal in intentionally aimed at such a small number of people is despicable.

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