In his State of the Union address Tuesday night, President Joe Biden is set to discuss his vision for a “billionaire tax” as he renews a push for Congress to increase taxes for ultra-wealthy Americans.
The details of the billionaire tax proposal haven’t been revealed yet, but a Monday fact sheet from the White House explained that “a minimum tax would make sure that the wealthiest Americans no longer pay a tax rate lower than teachers and firefighters.”
The White House emphasized that Biden is a capitalist and believes people should be able to become billionaires — but he thinks the tax code needs to be modified to make them pay more.
How would Biden's billionaire tax work?
The billionaire tax introduced in July would have required Americans with net worths of more than $100 million to pay a minimum tax rate of 20% on their income and net unrealized gains.
What does it mean to tax net unrealized gains? Normally, investments are not taxed until they’re sold, but a billionaire tax would change that. It would force ultra-wealthy Americans to pay taxes on the appreciation of their investments on an annual basis, even if they didn't sell. (More on that below.)
Dozens of Democrats co-sponsored the legislation. Prior to that, the White House issued a nearly identical proposal for a billionaire tax back in March. At the time, the administration said in a statement that the tax would reduce the deficit by $360 billion over the course of a decade and "eliminate the ability for the unrealized income of ultra-high-net-worth households to go untaxed for decades or generations."
How much do billionaires pay in taxes?
If you define income as wealth growth, which includes asset appreciation, billionaires’ tax rates can come out to be very low. That’s because a typical billionaire’s taxable income is often just a fraction of what they make in a year. (For example, Amazon founder Jeff Bezos paid a true tax rate of only 1.1% from 2006 to 2018, according to ProPublica.)
The White House believes that the average tax rate for a billionaire in a typical year is 8%, according to a preview of the State of the Union.
And an analysis released last spring by the left-leaning advocacy group Americans for Tax Fairness found that, among a studied group of 26 of the richest Americans, the tax rate on their wealth growth was 4.8% from 2013 to 2018. That was much lower than the rate they paid on their reported income, 18.2%. Only about a quarter of the wealth growth for these 26 people was reported income.
Who thinks the rich should pay higher taxes?
During a news conference Tuesday, House Majority Leader Steve Scalise, R-La., objected to Biden's call for a billionaire tax, saying that it'd actually end up hurting taxpayers who earn less than nine figures.
"They've pretty much got one IRS agent dedicated to each billionaire in America, so they're already paying their taxes," he added.
But several surveys have found strong support among the American public for increasing taxes on the rich. In October, YouGov released poll results showing 61% of U.S. adults supported a billionaire tax like the White House and members of Congress proposed last year, while only 22% of respondents opposed the policy. (The question specifically asked, “Would you support or oppose requiring American households earning $100 million or more to pay at least 20% of their income in taxes?”)
In other polls, questions about increasing taxes on the wealthy have returned majority support from respondents; generally speaking, Democrats support these measures at higher rates than Republicans. However, some surveys have also found majority support from conservatives for certain ideas about raising taxes on wealthy Americans.