Elon Musk attends the 2022 Met Gala at the Metropolitan Museum of Art.
Angela Weiss | AFP | Getty Images
President Joe Biden drew loud cheers during his State of the Union address Tuesday night when he proposed a new tax on the rich.
“Pass my proposal for a billionaire minimum tax,” Biden told Congress. “Because no billionaire should pay a lower tax rate than a school teacher or firefighter.”
Biden’s billionaire tax, however, also hits top millionaires. And rather than simply raising tax rates, it effectively taxes wealth, including unsold stocks, bonds and real estate.
According to the White House explainer on the tax, which Biden first proposed last year, the billionaire minimum tax would require households with total net wealth over $100 million to pay a minimum effective tax rate of 20% on an expanded measure of income that includes unrealized capital gains.
Under the plan, households would calculate their effective tax rate for the minimum tax. If it fell below 20%, they would owe additional taxes to bring their effective rate to 20%.
The big change is taxing unrealized capital gains as income. Currently, if a taxpayer owns a stock, bond, real estate or other assets, they don’t typically owe capital gains until it’s sold. Biden proposes taxing “unrealized gains,” meaning a tax on the annual paper gain in value even if it’s not sold.
So, if a tech founder owns $1 billion in stock and the stock increases in value to $1.5 billion during the year, they would owe a tax of up to $100 million on the $500 million paper gain – even if they didn’t sell a single share.
The White House says it would account for losses with credits, and by spreading payments and credits out over time. Taxpayers can spread the first payment — which is a tax on their total wealth — over nine years. Payment for the tax on annual gains after that can be spread over five years, which the White House says “will smooth year-to-year variation in investment income.”
Yet taxing unrealized gains is…
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