Sen. Ron Wyden (D-OR) and other Democrats introduced a proposal on Thursday that would tax the unrealized capital gains of billionaires and very high earners.
Wyden has spearheaded an effort to make a mark-to-market proposal law for years, and the new legislation is the latest iteration of that effort. The plan would affect those with net worths of over $1 billion. It would also apply to high earners who made more than $100 million in three consecutive years.
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If it were to become law, the plan would be a massive departure from how the United States handles federal tax policy, as it would apply levies on the unrealized gains of assets such as stocks and bonds for the wealthiest people.
The bill targets legal investment and spending strategies that billionaires use to shield themselves from tax liability. Wyden’s office said the legislation goes after a strategy dubbed “buy, borrow, die.” Wealthy taxpayers can invest in appreciable assets such as stocks and real estate and then borrow against the untaxed appreciated value of those assets to fund other purchases.
“America’s tax code is riddled with loopholes that allow the ultra-wealthy to get away without paying their fair share while working families have to play by a different set of rules and pay taxes out of each paycheck,” Wyden said.
The proposal differs from the current tax regime because gains would be taxed even if not realized. Under the tax code, billionaires whose investments increase in value are taxed on that growth, known as capital gains, when those investments are finally sold off.
“You can only have a successful economy if you have a tax code that treats everyone fairly,” he added. “My billionaires income tax will make that a reality by ensuring those at the very top start paying their fair share, just like the rest of us.”
Co-sponsors of the legislation include several senators on the Left: Sens. Elizabeth Warren (D-MA), Bernie Sanders (I-VT), John Fetterman (D-PA), and Jeff Merkley (D-MA).
The legislation would permit billionaire shareholders to choose up to $1 billion in stock of a single corporation to hold as a nontradeable asset to retain a controlling interest in that company. The intent is to prevent billionaire founders of companies from selling off huge chunks of their shares to foot their new tax bills.
Because the assets of some of these billionaires, particularly those with much of their wealth tied up in stocks, have appreciated by enormous amounts over the years, there would be a big initial tax bill. The Wyden bill allows them up to five years to pay off that first levy.
Wyden and the 15 other co-sponsors argue the legislation would help shore up funding for programs such as Social Security and Medicare, which are facing massive problems with sustainability and fiscal stability in the coming years.
They have also emphasized that the change in tax code would affect a very small number of people, roughly 700 wealthy taxpayers in the U.S.
But critics say soaking the ultra-wealthy could hurt capital markets by dissuading people from offering stocks or buying them. When the idea was first floated in 2021, Curtis Dubay, the senior economist for the Chamber of Commerce, argued it could add to the decline of companies going public through initial public offerings.
Dubay contended that the dwindling number of IPOs would, in turn, negatively affect middle-class investors, who are unsophisticated and uncertified, meaning they can’t take advantage of the same opportunities that certified investors can. Middle-class people, who might just invest on the side, would have a smaller pool of public companies to invest in.
The legislation also has no chance of passing in Congress because Republicans hold a majority in the House and would undoubtedly bat it down — plus, some centrist Democrats in the Senate are unlikely to support the proposal.
The mark-to-market proposal was unveiled in 2021 as a possible funding mechanism for President Joe Biden’s "Build Back Better" plan, although it was never formally introduced as it was on Thursday. At the time, Sen. Joe Manchin (D-WV) said he had problems with the plan.
“I don’t like it,” Manchin said in 2021. “I don't like the connotation that we're targeting different people as people that — basically, they contributed to society and create a lot of jobs and a lot of money and give a lot to philanthropic pursuits.”
The fact that the legislation has been introduced shows there is still an appetite among some of the more liberal lawmakers to tax the unrealized capital gains of billionaires.
“For too long, billionaires have rigged the rules to cut their taxes to the bone, all while working families struggle to make ends meet,” Warren said. “We should be investing in American families, not letting billionaires off the hook — and the billionaires income tax takes an important step to make our tax system fairer.”
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The Wyden legislation comes the same week that Reps. Don Beyer (D-VA) and Steve Cohen (D-TN) reintroduced a bill, backed by Biden, that would require households worth over $100 million to pay an annual minimum 25% tax rate on their full income, including that of realized and unrealized gains.
“A billionaire minimum tax of just 25% would raise $440 billion over the next 10 years,” Biden said in a Thursday social media post. “Imagine what we could do if we just made billionaires pay their taxes like everyone else.”