Explainer: What is a “wealth tax”? How does it work? | WGN Radio 720

President Joe Biden aims to go to a place with a lot of money, the billionaire, to help pay for his big financial and social challenges.

Biden never approved a full “wealth tax” in last year’s campaign. But his more customary proposed rate hikes on the incomes of large corporations and the wealthiest Americans ran into obstacles.

It puts a special tax, not income, on billionaire assets proposed by the Senate Democratic Party as a possible means to support childcare, universal pre-kindergarten, child tax credits, family vacations, and payment of environmental initiatives. leave behind.

Biden vowed that his program would not add a penny to the deficit. This means selling taxes to Congress and voters on the wealthiest .0005% of Americans. Some details about the proposed millionaire tax:

How does it work?

In essence, millionaires make most of their money from their wealth. This may be from the stock market. This may include ownership of once-sold beachfront mansions and rare works of art and antiques. Triceratops skeleton.

This new tax applies only to people with at least $ 1 billion in assets or $ 100 million in income for the third consecutive year. According to the Associated Press’s explanation of the Oregon Senate Finance Committee chairman Ron Wyden’s proposal, these standards only face 700 taxpayers with additional taxes on their wealth growth. It means that.

For tradable items such as stocks, millionaires will pay taxes even if they hold the assets. They are taxed on increased value and are deducted from losses. Under current law, these assets are taxed only if they are sold.

Billionaires are also subject to additional taxes on non-tradable assets such as real estate and business profits when they are sold. During the first year of the proposed tax, the billionaire is also obliged to pay the tax on the built-in profits prior to the tax.

How much money will raise it?

Speaker of the House Nancy Pelosi estimated at CNN on Sunday that taxes would rise from $ 200 billion to $ 250 billion. That’s a meaningful amount, but it’s pretty shy about the nearly $ 2 trillion additional spending proposed in the decade currently under negotiation. This means that additional levies, such as the global minimum tax and an increase in the IRS execution dollar, are still needed to fill the gap.

And the forecast of income from wealth tax is very controversial.

Alison Schlager, Senior Fellow at the Conservative Manhattan Institute, said: “There’s a lot of evidence that these don’t work, but I’ve never heard of an explanation of how this works.”

Why does Biden go on this route?

The president rather wants to raise the corporate tax rate and the tax rate of wealthy individuals. That was his first suggestion, but he needs to appease West Virginia Senator Joe Manchin and Arizona Senator Kyrsten Cinema. These are the votes of the two Democrats in the evenly divided Senate.

Cinema opposed higher tax rates, which brought wealth tax as an alternative.

This idea gained momentum after the publication of the book “Capital in the Twenty-First Century” by French economist Thomas Piketty. Massachusetts Senator Elizabeth Warren made a 2% wealth tax a trademark policy in the 2020 Democratic primary, and Vermont Senator Bernie Sanders proposed his own wealth tax.

Biden has never been in the tide at that time. But he said it was an important promise to impose high taxes on wealthy people, and those with incomes less than $ 400,000 would not pay any more.

Is Billionaire Really Abundant?

That’s right.

There is legitimate debate about the optimal form of taxation. Is it better for the economy for wealthy people to continue investing their assets in new businesses? Or is it better for some of their money to go to government to fund programs such as childcare, universal pre-K, and the transition to renewable energy?

What is clear is that wealthy people have the money to tax if the government wants it.

U.S. billionaires have seen a 70% surge in wealth collected since the start of the pandemic to $ 5 trillion, according to an analysis of the Policy Institute Program on Tax Fairness and Inequality of Americans Supporting Wealth Taxes. Is over. From March 18, 2020 to this month, its profits are comparable to Biden’s 10-year spending plan.

“Currently, millionaires aren’t paying taxes on the profits of their great income from their stake during the pandemic,” said Frank Clemente, executive director of American Tax Fairness. .. “Millionaires’ income tax will tax an increase in the value of these assets each year, much like workers’ wages are taxed.”

At the beginning of the pandemic, there were 614 US millionaires, but now the total has grown to 745.

Part of the reason that makes the coronavirus unique is that many poor Americans have also become wealthy, but they have done so at a much slower pace than millionaires.

According to Federal Reserve data, the net worth of the bottom 90% of Americans, a group that includes the middle class, increased by about 22%. For many Americans, rising wealth reflects rising stock markets, rising house prices, and unprecedented government assistance in the form of direct checks and permissible salary loans to small businesses.

Can billionaires be exempt from taxes?

They have found a way before.

They can hire an army of lawyers, accountants and others to minimize their tax burden. The press ProPublica published various tax shelters earlier this year using IRS data. A recent Pandora Papers has shown that there is a global industry that protects politically strong and very wealthy assets.

According to a ProPublica survey, Warren Buffett paid an average of 19%. Amazon founder Jeff Bezos paid 23%, while Tesla’s Elon Musk was about 30%. The maximum tax rate on income earned from labor is 37%, but the tax on capital gains is 20% lower, which is in favor of people with extreme wealth. Lower capital gains rates can also encourage more investment in new companies that help the economy grow.

A September White House analysis showed that between 2010 and 2018, the country’s 400 wealthiest families paid an average federal income tax rate of 8.2%. Tax income.

The final question for Democrats is how to close, or at least narrow, the escape hatch for those with extreme wealth. That may require calculations such as “deferred paybacks” and other technologies that can confuse most of the United States. But the enactment and enforcement of tax legislation will also determine how successful wealth tax is, and perhaps the fate of Biden’s big agenda.

___

AP writer Will Weissert contributed to this report.

Suggest a fix

Explainer: What is a “wealth tax”? How does it work? | WGN Radio 720

Source link Explainer: What is a “wealth tax”? How does it work? | WGN Radio 720

The post Explainer: What is a “wealth tax”? How does it work? | WGN Radio 720 appeared first on Illinois News Today.