Billionaire Income Tax (BAT):

A quick review of Senator Ron Wyden’s Proposal:

Senator Wyden’s proposal tweaks the tax codes in a few unique ways.

Normally taxes are only assessed on realized gains. Meaning if you own a stock, regardless of the current stock price you only pay taxes when you sell that stock for a gain. If you never sell, you never get taxed.

BAT Highlights:

Who does this tax?

Those with > $100 million gross income and/or >$1 billion of covered assets for each of the last three years. So under 1,000 people today.  

What is the tax?

Tradable covered assets, essentially publicly traded assets like stocks, will be “marked-to-market” annually and taxes will be imposed on the unrealized gains.

Non-tradable assets will record a “deferral recapture amount”, essentially an accruing interest charge of sorts that is due upon the sale of those non-tradable assets. Non-tradable assets would include real estate, art, personal businesses, etc. Basically, anything that is not liquid and marketable. The deferral recapture amount may not exceed 49%.

Commentary:

My personal view: There needs to be a broader distribution of income and wealth in our communities.

So, the actual proposal is just over 100 pages… despite this I’m skeptical there is enough language to close all the loop holes. When you have billions at stake you can afford to hire teams of lawyers, accountants, etc. to legally avoid and reduce this tax. I know. I’ve helped people reduce their taxes substantially; it gets complicated fast. The incentive to take actions to reduce this tax burden is quite high.

The approach overall seems somewhat workable.

It is legal?

I think so. I’m not a lawyer though. Wealth taxes are normally viewed as illegal under the U.S. constitution because they are a direct tax. It’s a tax levied directly on individuals and not apportionment to population. This is why we have the 16th amendment for income taxes. At least for tradable assets one could argue are facilitated through federally regulated financial markets. The deferred recapture seems legal on its face to me. Just different. Still there will be lawsuits that at minimum delay this.

Wealth taxes sound like a great way to redistribute wealth but they stumble on the implementation side. It’s too hard and too complicated to work in the long-term. Wealth taxes also fail to align interests.

I would prefer we incentivize wealth distribution at the top, before people become billionaires.

Perhaps require a minimum percentage of accounting profits for public companies be allocated to employees in cash or stock each year. Have a limit on the ratio of highest-to-lowest paid employees. Add a vesting schedule in there and we have a recipe for attracting more talent to public companies. As well as an incentive to bring more companies into the public markets where the best talent will follow.

Other views on taxes:

  • Increase funding to the IRS.
  • Reduce the tax burden on income. We should incentivize labor not penalize it.
  • Consider a value-added-tax (“VAT”) for companies over a certain size. This would tax profits at the transaction level, similar to a sales tax. VATs hit every time you have a gain/loss on providing goods or services.

Ex: Let’s say you buy a snuggie from Amazon. Amazon makes maybe $0.10 in gross profit on the transaction. A VAT of 10% would impose a $0.01 tax on the transaction.

  • Eliminate the corporate income tax. This would dramatically close the gap between for-profit and non-profit corporations. We have lots of lawyers, lets use them to make companies that better reflect what PEOPLE want from them. Perhaps that’s purely profit or purely non-profit but allowing for something in-between leans into our strengths.
  • Everyone should pay taxes. Taxes are contributions to our community. We need more people personally invested it our community’s success. I know, first everyone needs to have the means to pay taxes.
  • I expect progressive consumption taxes through a digital central bank currency to be the “ultimate” solution to our tax issues.
  • Taxes reduce spending by those you tax. They have less money. Every policy needs to keep this in mind. There is a tradeoff between government and private spending.

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