Oct 28, 2021

The billionaire tax.

The billionaire tax.

Plus, a reader question about that Wall Street Journal letter from former President Trump.

I’m Isaac Saul, and this is Tangle: an independent, ad-free, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum on the news of the day — then “my take.”

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Today's read: 10 minutes

A look at the proposed Billionaire Income Tax. Plus, a reader question about that Wall Street Journal letter from former President Trump.

Sen. Ron Wyden (D-OR) who proposed the billionaire tax. Photo: Senate Democrats
Sen. Ron Wyden (D-OR) who proposed the billionaire tax. Photo: Senate Democrats

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President Biden pleaded with Democrats this morning to embrace a $1.85 trillion reconciliation package that would include universal preschool for six million kids, subsidies for child care, and $555 billion for programs to move Americans to electric vehicles and entice utility companies away from gas and coal. The details of plan are still being released, and this is a developing story.

Quick hits.

  1. The U.S. economy slowed to a 2% growth rate last quarter, well below the 2.6% predicted by economists. (The numbers)
  2. Democrats dropped a paid family and sick leave proposal from their reconciliation bill in order to reduce its overall cost. (The decision)
  3. Iran said it will return to talks on a nuclear deal in Vienna next month. (The negotiations)
  4. The U.S. issued its first-ever passport with 'X' gender designation for people who don't identify as male or female. (The passport)
  5. A judge rejected a request from New York City police officers to stop a vaccine mandate for cops. (The ruling)

Today's topic.

The billionaire tax. Earlier this week, Democrats released a new proposal that they said will help them pay for their infrastructure and reconciliation bills: A billionaire income tax (BIT). The legislation was drafted by Senate Finance Committee Chairman Ron Wyden (D-OR), who said the new bill would impact about 700 billionaires who earn "over $100 million in annual income for three consecutive years or who have more than $1 billion in assets," according to CNBC. Wyden says the changes would raise hundreds of billions of dollars in new revenue.

How it would work: Right now, investors pay capital gains taxes when they sell an investment and realize a gain. Many investors avoid this tax by holding onto investments until they die and then passing those investments onto their heirs without ever paying capital gains taxes. While holding onto the investment, they can borrow money against their investment portfolio without selling anything off — the low-interest loans they take out can't be taxed and aren't reported as income.

Wyden tries to address this tax disparity by eliminating these loopholes and making billionaires pay taxes on the gains or take a deduction for a loss for the tradable assets they're holding on to, whether they sell them or not.


It would not apply to assets like real estate or a business interest, which would be taxed as capital gains when they are sold or transferred to someone else, or when the owner dies. Owners would also be charged interest. That could mean some very large tax bills for a few households. In a simple example, if an impacted taxpayer had $1 billion in tradable assets that grew to $2 billion over the course of one year, they would pay $238 million in taxes at the 20% top capital gains rate plus the 3.8% net investment income tax.

Will it happen? We'll see. Wyden's plan is already facing stiff opposition not just from Republicans, but even from Democrats in the House — including his counterpart, Ways and Means Committee Chairman Richard Neal, who said it might be too complex to institute. There are also questions about whether it's legal, given that the Constitution calls for apportioning direct taxes among states (the 16th amendment introduced an exception that allowed federal income taxes without apportionment). Opponents argue that unrealized capital gains are not income and can't be taxed. It's further complicated by the fact there are no known billionaires in some states, which means apportioning the revenue would be impossible.

The White House is struggling to get a unified Democratic front on how it plans to pay for its infrastructure plan and a reconciliation bill that could cost more than $3 trillion combined. The Biden administration has endorsed instituting a 15% corporate minimum tax rate and tougher enforcement of tax laws as well. This morning, news broke that Biden would soon be announcing a plan — including a spending plan — that he claimed would win the support of centrist holdouts, though details of that plan are not yet known and Congressional reporters are rightly skeptical that the announcement could just be White House spin.

Below, we'll take a look at some reactions to the billionaire tax proposal from the left and right, then my take.

What the left is saying.

The left is mixed on the plan, with some arguing it’s a bad option with good intentions and others saying it’s time to make billionaires pay their fair share no matter what.

In The Hill, Chuck Collins, author of The Wealth Hoarders, wrote supportively about the bill.

"Since March 2020, the beginning of the pandemic, 745 U.S. billionaires have seen their total wealth increase by $2.1 trillion, a gain of 70 percent," Collins wrote. "Experts predict the tax would raise an estimated $200 billion to $250 billion over 10 years — a sum that would still leave U.S. billionaires with more money than they could ever manage to spend. This group of America’s 700 or so wealthiest people now holds a total of $5 trillion. When (since 1983) have they enjoyed the biggest bump in their combined fortunes? That would be during a pandemic that has infected over 45 million and killed over 725,000 in the United States alone.

"Pandemic wealth gains, along with recent exposes on billionaire tax avoidance, have set the stage for this targeted and politically popular tax on billionaires," he said. "On Sept. 23, the White House released findings that the 400 wealthiest U.S. billionaires paid an average effective federal income tax rate of just 8.2 percent between 2010 and 2018, much less than the 14 percent average for ordinary taxpayers... nothing will address extreme wealth inequality like a Billionaire Income Tax. And there is no better time to ensure that billionaires pay their fair share."

Paul Waldman said we are once again "required to ruminate on the delicate psychology of the afflicted billionaire, who in Republicans’ telling is always moments away from liquidating his assets and decamping to a mountaintop ashram in despair."

"We’re supposed to believe that Elon Musk, whose net worth now approaches $300 billion from his stock in Tesla, will tell his board of directors, 'If I have to pay more in taxes, then I’m done with stocks. From now on, I want you to pay me in ranches,'" Waldman said. "We hear these arguments from Republicans every time a tax increase on the wealthy is proposed: There will be a billionaires’ strike, and the entire economy will collapse. We heard it when Bill Clinton signed a tax hike on them, and when Barack Obama did. Yet there was no mass exodus of the wealthy either time.

"What do the superwealthy actually do when faced with a tax increase? They use armies of accountants and tax lawyers to pay as little of that increase as possible (according to the White House, billionaires pay an average of just 8.2 percent in federal income taxes). They don’t leave the country or shut down their businesses," Waldman wrote. "And of course, there’s a flip side to the Republican argument about the sensitivity of billionaires to tax changes: If we cut their taxes, the billionaire class will erupt like a volcano of prosperity, showering so much new wealth upon us that it will usher in an age of human flourishing unknown in the annals of history. That doesn’t happen, either. It didn’t happen when Donald Trump signed a big tax cut, or when George W. Bush did."

In Bloomberg, Alexis Leondis said Wyden's proposal is a "complex plan bound to hit legal roadblocks and create logistical headaches."

"Fortunately, there’s a sounder idea for targeting the more than $5 trillion America's billionaires have earned yet have paid relatively little in taxes on. It’s based on a plan that was part of President Joe Biden’s revenue proposals earlier this year: Instead of taxing the wealthiest each year, as Wyden would do, Biden’s original plan would tax them upon their death," she wrote. "According to legal scholars, there's no legitimate constitutional challenge to tax-at-death. The estate tax has long been established as constitutionally viable, and taxing unrealized gains at death is in that same vein, since it involves a transfer of property.

"There are other benefits, too, to using Biden’s strategy," Leondis added. "Lawmakers wouldn't have to worry about things like how to account for losses in one year or the different treatment for liquid and illiquid assets. Those accommodations generally lead to loopholes and opportunities for exploitation."

What the right is saying.

The right is opposed to the plan, saying it is both unconstitutional and will damage the economy.

In USA Today, James R. Robbins said Democrats are frantically trying to find a way to pay for their reconciliation package, so they're proposing something unconstitutional.

"Wyden is open about the class-envy angle of his proposal, since billionaires do not generate much sympathy these days. Democrats think this is good politics. Maybe so, but there's a problem – it is unconstitutional," Robbins said. "Article 1 Section 9 of the Constitution forbids the government from laying a 'capitation, or other direct, tax' unless in proportion to the Census. According to Alexander Hamilton, this comprises 'taxes on lands and buildings. General assessments, whether on the whole property of individuals, or on their whole real or personal estate.'

"This ban was the basis for the Supreme Court declaring income taxes unconstitutional in Pollock v. Farmers' Loan & Trust Co. in 1895," he wrote. "Chief Justice Melville Fuller noted that 'nothing can be clearer than that what the Constitution intended to guard against was the exercise by the general government of the power of directly taxing persons and property.' The Pollock case gave rise to the 16th Amendment, ratified in 1913, which carved out an income tax exception from the general ban on direct taxes. But the income tax amendment cannot be read to authorize a federal wealth tax, even on those nasty billionaires. The federal government simply lacks the power to take your property directly."

On top of being unconstitutional, it's not going to always be a tax on billionaires, The Wall Street Journal editorial board argued.

"The first income tax enacted after ratification of the Sixteenth Amendment in 1913 had seven tax brackets with rates from 1% on income over $3,000 ($83,972 in current dollars) to 7% on income exceeding $500,000 ($14 million). You know what rates are now," the board wrote. "The alternative minimum tax also only applied initially to the richest Americans, but with time expanded to hit millions in the middle class.

"Maybe the only impediment to extending the wealth tax more broadly is the challenge of administering it," it added. "Even House Ways and Means Chairman Richard Neal acknowledges it would be a logistical nightmare. Details of Mr. Wyden’s plan haven’t been released, so it’s not clear if the tax would apply to non-financial assets like artwork, jewelry and intellectual property. If so, more Americans could get soaked since the IRS will no doubt inflate the value of non-financial assets, as it often does with the estates of high earners."

In The Hill, Liz Peek said Biden and Democrats are lying about their wealth taxes.

"And when, most recently, Treasury Secretary Janet Yellen describes Democrats’ latest brainstorm for raising revenues — a tax only on 700 of America’s wealthiest people — as not a wealth tax, she’s playing us for chumps," Peek wrote. "Yellen wants us to believe that unrealized capital gains are income. That is not true. If you have a stock that doubles in value, plumping up your investment portfolio, you feel pretty chipper and indeed wealthier. But unless you actually reap that gain by selling your shares and receiving the proceeds from the buyer, you can’t buy a ham sandwich... Yellen knows that, and she also must know that a wealth tax may be unconstitutional, as well as unproductive. She is simply playing ball with Democrats, who have not only egg but entire omelets on their faces.

"The truth is that Democrats are battling each other over Biden’s bill because voters are not on board with spending trillions more, on top of the $5 trillion already doled out on COVID-19 relief," Peek wrote. "They are worried about inflation, and think huge government outlays contribute to the problem."

My take.

The posturing, politicking and process of crafting this reconciliation bill has led to a lot of ideas about how to pay for it and, thus, a lot of talk about taxes. I've said repeatedly that, like commentary on inflation, economists are great at contradicting each other (and themselves) while obscuring the truth. On this proposal, though, there seems to be a bit more clarity.

There are a few arguments against the billionaire tax that stick with me most. The first, and the most obvious, is that it simply isn't constitutional. The legal commentary on the proposal, along with Supreme Court precedent, makes me think relying on this idea to pay for the bill is basically a suicide mission, one Democrats won't come out of unscathed.

The next best argument is that implementing it, working it, and then actually collecting the tax revenue would be so arduous and so difficult that relying on the bill as a means to raise revenue is similarly risky. That's not a Republican talking point: It's coming from the Democrats' top finance guy in the House of Representatives.

I have to confess I also find it difficult to believe that it will only apply to 700 billionaires — at least after a few years. I went to bed after laying out the framework for this newsletter, and by the time I woke up the idea had already been swapped out for a surtax on millionaires. Historically speaking, one thing you can almost guarantee about taxes is that the number of people they will apply to will only grow over time.

These facts alone are enough for me to be cold on the idea, to say the least. And they’re all on top of the fact that wealth taxes in other countries have repeatedly failed.

That's not to say there aren't rebuttals. For instance, if the IRS can tax hundreds of millions of people every year, what would be so hard about tracking 700 people's stock gains? And if the contours of the idea are unconstitutional, why not just change the law or change the framework of the bill so it holds water? I’m also not losing sleep over 700 billionaires losing tens of millions of dollars to help pay for parental leave or accessible education for everyone else.

Still, if your plan can't gain support from allies in your party, looks unconstitutional on the face of it, and would probably be so difficult to implement that tax experts are wondering whether it'll work at all — it's probably not a good plan. It's not a good look for the party, either, as it gives the impression (or perhaps reveals the reality) that Democrats are both divided and flailing while trying to come up with a plan that even presents the illusion they can pay for the spending they are proposing. They may have been better off just selling the public on the idea that adding to the debt was worth it, rather than trying to convince us the proposals would cost zero dollars.

For whatever it's worth, Bloomberg's Alexis Leondis made a compelling case that Biden's original plan — the one he ran on, which is taxing these gains at death — is both legal and simpler to implement. Maybe it's time for the president to revisit his campaign notes.


One billion dollars is one thousand million dollars. If you divided $1 billion by 365 days, you could pay yourself $2.7 million every single day. That's $1,875 every minute, or an hourly rate of $112,500. It's a lot of money.

You know what's not a lot of money? A Tangle subscription. They cost just $50/year, or $4.16/month, or 13 cents a day. And instead of juicing the profits of the wealthy, you're just supporting a small band of independent journalists trying to build a new, better kind of news. You can subscribe by clicking here or drop something in our tip jar by clicking here.

Your questions, answered.

Q: Yesterday, The Wall Street Journal editorial board published a "letter to the editor" from former President Donald Trump. In it, Trump made several claims about election fraud that have been widely debunked or discredited — but the WSJ published the letter anyway, without any context. What did you think of that decision?

— Eric, Fairfax, Virginia

Tangle: I thought it was irresponsible. And I said so on Twitter. The Wall Street Journal is one of the finest papers on the planet, and usually is the first thing I open in the morning. Their news teams are stellar, and they’re also increasingly frustrated with the editorial side of the paper — which Tangle cites frequently but which often publishes pieces that directly contradict the reporting their own news team has done (this happens in other places, too).

Again: I love the Wall Street Journal and find their opinion section especially engaging and interesting. But frankly, I was pretty floored when they published it with no context. Philip Bump wrote a good article about all the ways the Trump letter could have been fact-checked. Typically, when you publish an op-ed or a letter to the editor in a newspaper, they will push back on the writing to ensure it meets certain editorial standards. It appears no such process took place here, and the WSJ refused to comment on the justification for publishing it. The only conclusion I can come to is that they knew people would click and probably subscribe to access the piece, which is exactly the kind of perverse incentive that led me to create Tangle.

A story that matters.

College students voted in record numbers in 2020, according to a new report from the Boston Globe. 66% of college students voted in that election, up 14 points from 2016, a much larger increase than we saw in any other age bracket. For years, politicians have been trying to mobilize younger voters and — despite many elections hyping potential turnout — have most often failed. This time, though, it appears we could have witnessed an actual surge in turnout and are perhaps witnessing the beginning of increased civic engagement from younger voters. “This is just another indication that Gen Z is coming of age with real purpose,” John Della Volpe, director of polling at the Harvard Kennedy School Institute of Politics, said. The Boston Globe has the story.


  • 2,755. The number of billionaires in the world.
  • 724. The estimated number of billionaires in the U.S., as of 2020.
  • 698. The estimated number of billionaires in China, as of 2020.
  • 189. The estimated number of billionaires in California, the highest of any state.
  • Six. The number of states with zero billionaires: Alabama, Alaska, Delaware, New Hampshire, New Mexico and Vermont.
  • $13.1 trillion. The estimated combined net worth of all the world's billionaires.

Have a nice day.

Yesterday, Merck announced a royalty-free license for its promising Covid-19 pill to a United Nations nonprofit that will allow the medicine to be manufactured and sold cheaply in the world's poorest countries. The agreement will allow companies in 105 countries — mostly in Africa and Asia — to begin making the pill. Merck reported this week that the medicine halved the rate of hospitalizations and death in high-risk Covid patients. Advocates who hope the pill can be made widely available say it will aid nations where Covid-19 vaccines are in shortest supply. The New York Times has the story.

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