Senate Democrats are crafting a plan to tax billionaires and other ultra-high earners in order to pay for the bulk of President Biden's signature economic spending plan after failing to secure enough support for a slew of other planned tax increases.
Senate Finance Chair Ron Wyden, D-Ore., is slated to unveil a tax on the unrealized capital gains of the ultra-wealthy this week, Treasury Secretary Janet Yellen said during an interview on CNN. The proposal, which has support from other Democrats, would set the so-called billionaires' income tax at $1 billion income, or three consecutive years of $100 million or more in income.
"I wouldn’t call that a wealth tax, but it would help get at capital gains, which are an extraordinarily large part of the incomes of the wealthiest individuals and right now escape taxation until they’re realized," Yellen said.
Democrats hope to generate at least $200 billion in new revenue over the next decade from the tax, which would include stocks as well as other assets like real estate. Individuals could claim deductions for annual losses in the value of their assets.
It would affect roughly 700 taxpayers, or about 0.0002% of the richest Americans.
"Raising the rate is not going to cause Jeff Bezos to pay a penny more," Sen. Elizabeth Warren, D-Mass., told MSNBC on Sunday. Warren has pushed for a tax on the wealthiest Americans for years, rolling out a far more expansive plan during her 2020 presidential campaign. "What we need is a tax that focuses on the wealth of the richest Americans."
Still, it's unclear whether the tax, which would be the first of its size and scope in an advanced economy, will be backed by every Senate Democrat and nearly every House Democrat — the required threshold for its passage.
Senior Biden officials and other top Democrats have expressed cautious optimism that moderate lawmakers like Sen. Kyrsten Sinema, D-Ariz. will support the effort, according to The Washington Post, citing three congressional aides and two administration officials, who spoke on the condition of anonymity.
The proposal marks a significant shift from President Biden's initial tax hike proposal, which largely targeted well-off corporations and Americans earning more than $500,000. But Sinema expressed opposition to the higher tax rates on corporations, individuals and capital gains, arguing it would do little to improve the nation's economic competitiveness or crack down on tax evaders.
"She is committed to ensuring everyday families can get ahead and that we continue creating jobs," Sinema spokesman John LaBombard said in a statement on Friday. "She has told her colleagues and the president that simply raising tax rates will not in any way address the challenge of tax avoidance or improve economic competitiveness."
Critics, including Republicans and tax groups such as the National Taxpayers Union, have slammed a tax on billionaires' unrealized capital gains, arguing it would add more bureaucracy to the already bloated tax system and hurt business investors.
Democratic leaders have set an Oct. 31 deadline to reach an agreement on the spending plan and a separate $1.2 trillion bipartisan infrastructure deal. Pelosi did not respond on Thursday when asked whether she thought lawmakers would meet that self-imposed target date.
Although it's unclear what the final proposal may look like, it's expected to be significantly smaller than the original one floated by the White House: Biden has discussed a topline figure with Democrats that would be somewhere $1.7 trillion and $1.9 trillion.
The narrower package includes many of the original plan's proposals, including universal pre-K, substantial investment in green energy and expanded Medicare benefit; however, the details are still subject to change, The Washington Post reported last week. Still, it may eliminate or weaken several key programs favored by progressives, including free community college, less money for affordable public housing and a child tax credit extension of just one year.
During her daily press briefing, White House press secretary Jen Psaki said the White House was "continuing to make progress" toward an agreement.
Democrats have just a few legislative weeks to negotiate and pass a spending bill in both chambers in addition to the infrastructure bill that Biden views as critical to his campaign pledge to work across the aisle. But the party will also be juggling the threat of two impending crises: a government shutdown and debt default.