The White House will propose a new tax tomorrow on American billionaires as part of a plan to reduce the US budget deficit and revive President Biden’s stalled domestic agenda.
The “billionaire minimum income tax”, an element of Biden’s budget for 2023, would impose a 20 per cent minimum tax rate on Americans worth more than $100 million, the top 0.01 per cent.
The White House estimates that the tax would reduce the deficit by $360 billion over the next decade, with much of the money coming from the richest 700 Americans.
Biden has repeatedly urged the wealthiest households and companies to “pay your fair share” in taxes, but has not introduced a plan to target billionaires until now, preferring to raise the top rate of income tax, and increase taxes on capital gains and corporations.
The new proposal, outlined in a document at the weekend, would tax the richest Americans’ “full income”, including unrealised gains on the value of liquid assets such as stocks and bonds.
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Under the proposed new rate, economists have calculated that Elon Musk, chief executive of Tesla and the world’s richest man, would pay an extra $50 billion in tax. Jeff Bezos, the founder of Amazon, would pay an additional $35 billion.
The proposal comes as the Biden administration seeks to revive the president’s ambitious Build Back Better spending plan to boost social care and fight climate change, which collapsed before Christmas following opposition from within his own Democratic Party. The White House is also struggling to tackle soaring inflation, now at its highest in four decades.
The cost of living crisis threatens disaster for Democrats at crucial midterm elections in November, and a tax on the wealthy could be politically popular at a time when the price of food and petrol has rocketed for ordinary Americans.
“President Biden is a capitalist and believes that anyone should be able to become a millionaire or a billionaire,” a White House fact sheet outlining the tax proposal said. “He also believes that it is wrong for America to have a tax code that results in America’s wealthiest households paying a lower tax rate than working families.”
Many billionaires can pay lower tax rates than lower income households because the government does not tax the increase in the value of their assets until they are sold.
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The richest are able to borrow against the value of their assets without triggering capital gains tax, allowing vast accumulations of wealth to go almost untaxed by the government.
The White House’s Council of Economic Advisers calculated last year that 400 billionaires paid an average of only 8 per cent of their income between 2010 and 2018, lower than the rate paid by millions of Americans.
“The billionaire minimum income tax will ensure that the very wealthiest Americans pay a tax rate of at least 20 per cent on their full income,” said the White House document, first reported by The Washington Post.
“This minimum tax would make sure that the wealthiest Americans no longer pay a tax rate lower than teachers and firefighters.”
The idea of a wealth tax gained momentum last year as Biden sought to finance his sweeping climate and social care agenda. The new proposal follows signs that the White House has reopened negotiations with Democratic senators who blocked Biden’s ambitious spending plans last year, in an attempt to revive his stalled Build Back Better plan ahead of the midterms.
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The conservative senators Joe Manchin of West Virginia and Kyrsten Sinema of Arizona torpedoed the sprawling $1.75 trillion bill before Christmas in a humiliating blow to Biden’s flagship spending plan.
The White House has signalled that it is willing to scale back the proposal to get Manchin and Sinema back on board and present a legislative victory to voters before the midterms. It is unclear if the two senators would back the billionaire tax increase, however.
