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WASHINGTON — Sen. Kyrsten Sinema is blocking Democrats from raising taxes on millionaires. Now they’re looking at an even more ambitious plan to crack down on billionaires instead.
It’s one of many twists from the tumultuous negotiations as Democrats figure out how to raise hundreds of billions of dollars in tax revenue to pay for their Build Back Better Act.
The initial plan raised the corporate tax rate and income tax rate for top earners but did not fundamentally reshape a tax code that gives extreme preferential treatment to the ultrawealthy.
Sinema, a top thorn in the side of progressives, is refusing to support that proposal and can block it in the Senate. This seemingly closes the door on raising tax rates, but Democrats are now looking to target tax avoidance, a move that could end up being significantly more impactful.
Senate Democrats announced on Tuesday two plans to tax the richest people and companies in the US. Ron Wyden, chair of the Senate Finance Committee, released a plan to tax the wealth of billionaires annually. Sens. Wyden, Elizabeth Warren, and Angus King released a bill to ensure companies with over $1 billion in annual profit pay at least a 15% corporate tax rate. Sinema announced she supports the latter plan.
These measures would be narrowly focused on top earners. Forbes estimates there are 724 billionaires in the US; a projected 200 large companies would be impacted by the corporate tax floor. But senators say that both measures would bring in hundreds of billions of dollars over the next decade.
The ultrarich can easily avoid paying income tax because most of their gains come not from wages but from assets, such as ownership stakes in companies. Jeff Bezos is worth an estimated $177 billion but draws a salary of less than $82,000 per year.
Those potentially massive capital gains are not taxed until they are sold. Billionaires can simply hold on to their assets and take out low-interest loans to fund their lifestyles. Interest on those loans can be a fraction of what their taxes would be. If the person dies before they sell, the capital gains bill is wiped out altogether when their fortune is passed down to their heirs. This “buy, borrow, die” strategy can result in extremely low tax bills being paid by the wealthiest class of citizens.
Wyden is drafting a plan to tax capital gains on their annual growth instead of when they are sold. Known as mark to market, this would mean the Bezoses, Zuckerbergs, and Musks of the world would have to pay taxes on their wealth as it accumulates in real time.
Wyden repeatedly referred to his plan Tuesday as a “billionaire’s income tax” rather than a wealth tax. He said it would affect people with more than $1 billion in assets or who report $100 million or more in increased wealth for three years in a row.
His plan would limit the impact to a comparatively small number of extremely wealthy people. As ever, the question is whether it can pass through Congress. Wyden said there is agreement, at least conceptually, across the Democratic Party.
“I have not heard a single senator get up and say, ‘Gee, I think it’s OK that billionaires pay little or no taxes for years on end,” Wyden said. He did not say what rate capital gains would be taxed at under his plan but noted that details would be released soon.
Sinema and Sen. Joe Manchin have been the two Democrats objecting to large planks of the Build Back Better Act. They have immense power, given that the support of every single Democratic senator is necessary for passage in the Senate.
Manchin seemed open to the idea of a billionaire tax when asked by reporters.
“I’m open to any type of thing that makes people pay who aren’t paying now. So people who don’t report income like you and I do ... there has to be a way for them to pay their fair share,” he said.
Sinema hasn’t publicly commented on it yet. In fact, she hasn’t publicly commented on most of her positions on the bill. Other Democrats involved in negotiations say she is refusing to support key provisions, such as lowering Medicare drug prices and the initial plan to raise corporate and income tax rates.
It will be an uphill battle to win broad support for the billionaire tax plan given how late in the game it is being introduced. Rep. Richard Neal, the Democratic point person on taxation in the House, is continuing to say that his plan is preferable.
Democrats need to find some way to raise tax revenue to pay for the major social policy planks of the bill, such as paid parental and sick leave, universal prekindergarten, subsidized childcare, a permanent child tax credit, Medicaid and Medicare expansion, and investments in green energy.
Some of those policies will have to be whittled down or cut out entirely. Negotiations have been in constant flux, with announcements of “frameworks” wielding little clarity about what will be in the final bill.
“The challenges change every hour, never mind every day,” Neal said.
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