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How the proposed tax on billionaires would actually work


Now, think back to the campaign trail - yes, way back to 2020 - and you might remember this idea that candidates like Bernie Sanders and Elizabeth Warren were promoting.


ELIZABETH WARREN: Doing a wealth tax is not about punishing anyone. It's about saying, you built something great in this country. Good for you. But you did it using workers all of us helped pay to educate.

CHANG: Both dropped out of the race, but a version of the wealth tax - it might be getting a second life. Today, Senate Democrats unveiled a proposal for a new tax that applies to the super rich. Their pitch is that the revenue from that tax would help fund the $2 trillion social safety net bill. And our friends at Planet Money's The Indicator podcast have been following this. And here to tell us so, so much more about it is Adrian Ma. Hey, Adrian.

ADRIAN MA, BYLINE: What's up, Ailsa?

CHANG: What's up? OK, so who exactly would be affected by this tax? And, like, how much money could it raise?

MA: So this tax targets billionaires and, according to the legislation, people with a billion dollars or more in assets or folks who've made more than $100 million in three consecutive years.

CHANG: Clearly, this bill would not affect people like you and me, like not even remotely.

MA: No, probably not. I mean, unless you're like a secret billionaire...

CHANG: Nope.

MA: ...Probably not. And me, I mean, if you took a look at my checking account, I think I would maybe qualify as a thousandaire (ph). But...

CHANG: (Laughter).

MA: So basically, billionaires and some millionaires. And because of that, the bill sponsors say it would only affect about 700 people.

CHANG: Seven hundred people? That doesn't seem like a lot in terms of, like, you know, the whole U.S. taxpaying population.

MA: No, that is not many taxpayers at all. But proponents say it would raise about 200- to $250 billion.


MA: And the way it would do that is by taxing unrealized gains on things like stocks and real estate.

CHANG: OK, unrealized gains - I've been hearing this phrase a lot. It seems to be doing a lot of work here.

MA: So, yeah, basically that means assets that have appreciated in value. And why that's key to this whole proposal is that billionaires can actually avoid owing the IRS by never selling their assets. So if you're a billionaire and you hold a bunch of stocks, one thing you can do is take out a bank loan against those assets and live off that money. No need to sell your stocks or your private jet or whatever, which means no taxes for Uncle Sam. And so what this bill tries to do is close off that route and actually tap that wealth.

CHANG: OK, but that's if this tax, like, actually comes true. And I understand that there's a question about whether a tax like this would even be legal.

MA: Yeah. I mean, there's a Supreme Court case decided in 1920 called Eisner v. Macomber. And it was decided just after Congress passed the 16th Amendment, giving the federal government the power to collect income tax. And what the court in that case said is that income means the proceeds from some sort of transaction, right? Like, you work and you get a paycheck - that's income. You sell your house - that's income. So here's where the skeptics come in and say, just holding an asset that becomes more valuable - that's not income. And that's why they say this law would be unconstitutional. Today at the White House, White House press secretary Jen Psaki said the president is on board with the proposal.


JEN PSAKI: We're not going to support anything we don't think is legal. But I will tell you, the president supports the billionaire tax. He looks forward to working with Congress and Chairman Wyden and to make sure the highest-income Americans pay their fair share.

CHANG: There's also the issue of getting all of his party on board, right? Like, we're talking about moderate Democrats like Senator Joe Manchin of West Virginia.

MA: Yeah. I mean, just this morning, Senator Manchin said while he's supportive of making sure the wealthy pay their fair share in taxes, he doesn't like the idea of a billionaire tax.


JOE MANCHIN: People in the stratosphere, rather than trying to penalize them, we ought to be pleased this country is able to produce the wealth. But with that, there's a patriotic duty that you should be paying something to this great country to give you the protection and the support and the opportunities.

CHANG: OK. But, you know, Adrian, if this bill does somehow manage to get through and become law, this would be a huge change for U.S. tax policy, right?

MA: Oh, definitely. No question. But also, it would kind of resemble the thinking behind the federal income taxes when they started a century ago, you know, when the 16th Amendment was ratified. At the time, wealth inequality was a huge problem. So in the early years, income taxes really targeted a small slice of very wealthy Americans. And get this - right before the Second World War, only about 5% of households were subject to the income tax.

CHANG: Oh, wow.

MA: Yeah. And that has shifted dramatically over the years. According to the Tax Policy Center, about 55% of households paid income tax in 2019. So while all this debate over taxing the super wealthy is going on, as we know, there's a big deadline looming, right? The Democrats say they would strike a deal to pass both infrastructure bills by the end of this month, which is just a few days from now.

CHANG: Just a few days. And that is Adrian Ma. He reports for NPR's daily economics podcast, The Indicator From Planet Money. Thanks so much, Adrian.

MA: Thank you, Ailsa.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.

Ailsa Chang is an award-winning journalist who hosts All Things Considered along with Ari Shapiro, Audie Cornish, and Mary Louise Kelly. She landed in public radio after practicing law for a few years.
Sam Gringlas is a journalist at NPR's All Things Considered. In 2020, he helped cover the presidential election with NPR's Washington Desk and has also reported for NPR's business desk covering the workforce. He's produced and reported with NPR from across the country, as well as China and Mexico, covering topics like politics, trade, the environment, immigration and breaking news. He started as an intern at All Things Considered after graduating with a public policy degree from the University of Michigan, where he was the managing news editor at The Michigan Daily. He's a native Michigander.
Adrian Ma
Adrian Ma covers work, money and other "business-ish" for NPR's daily economics podcast The Indicator from Planet Money.
Ashley Brown is a senior editor for All Things Considered.
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