President Biden will renew his plan for a “billionaire minimum tax” and will also call for quadrupling the 1% surcharge on corporate stock buybacks during the State of the Union address on Tuesday.
According to the White House “Fact Sheet” released Monday, the “minimum tax would make sure that the wealthiest Americans no longer pay a tax rate lower than teachers and firefighters,” claiming the average federal income tax rate for billionaires is 8.2%.
“President Biden is a capitalist and believes that anyone should be able to become a millionaire or a billionaire. 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,” the fact sheet reads. “In the State of the Union, he’ll call on Congress to pass his billionaire minimum tax. This minimum tax would make sure that the wealthiest Americans no longer pay a tax rate lower than teachers and firefighters.”
The 8% figure the Biden administration is claiming is the tax rate for the wealthiest has been debunked given that the levy rate is based on calculation when counting unrealized capital gains as income. According to the 2020 Internal Revenue Service data, the most recent annual report released showed that the top 1% had paid 42.3% of federal income taxes, up from 38.8% in 2019. Meanwhile, the top 5% of earners paid 62.7% of federal income taxes in 2020, and the top 10% paid 73.7% of all federal individual income taxes, up nearly 3% from the 2019 level of 70.8%.
Biden has previously proposed this plan during his 2023 federal budget where he called for a 20% tax to be applied to the “total income,” of households with a net worth of more than $100 million. The total income, according to the Treasury Department outline includes regular earnings and so-called unrealized gains, or investment growth.
The original billionaire minimum tax failed to gain much traction during the Democratic-controlled Congress last year and is very unlikely to occur with Republicans controlling the House chambers now.
The Senate Democrats’ version pushed for a similar proposal to that of Biden as a way to fund their domestic climate spending agenda, but the plan failed to gain support from within the party.
If Biden were to gain more support this time around, the plan however will face many legal and administrative problems. The Tax Foundation expressed concerns over Biden’s original measure, citing the tax would be “complicated” to ever impose on “a narrow segment of high-earning households” and remit taxes on unrealized capital gains would never produce a “stable source of permanent funding.”
Legal scholars raised unconstitutionality and ambiguities over Biden’s proposal, arguing “unrealized gains” are not considered taxable as income under the 16th Amendment ⎼ which grants Congress the power to impose an income tax.
During his first State of the Union speech last year, Biden called for the surcharge on corporate stock buybacks to be increased to four times the rate. Senate Democrats last August were able to inflict a 1% stock buyback tax starting 2023 as part of its “Inflation Reduction Act.” The White House in the fact sheet argued inflicting a higher surcharge will likely become a bigger deterrent for companies wanting to buy back their own shares of stocks. Citing record-breaking profits made last year, the Biden administration contends it is the very reason oil and gas companies benefit from surging oil prices rather than investing in domestic production — despite the White House’s own policies is the real reason they are preventing companies from turning their profit to re-investment instead of stock buybacks.Billionaire Minimum TaxEconomic NewsInflation Reduction ActPresident BidenSOTUState of the UnionState of the Union 2023Stock BuybackTaxTax FoundationWhite House News