Washington could tax dormant earnings of the super-rich to finance social spending

The United States is preparing a tax on the super-rich to finance Joe Biden’s investment plans, the result of difficult negotiations between the various democratic wings and a singular object in the country of the cult of individual success.

Faced with the opposition of part of the Democrats to an increase in taxes on multinationals to finance infrastructure programs and social measures, an idea has resurfaced: taxing so-called “latent” capital gains is that is, tax the dormant gains in the thick portfolios of stocks of the great American fortunes.

Today, a wealthy shareholder like Elon Musk, boss of Tesla or Jeff Bezos, the founder of Amazon, does not pay tax on these unrealized capital gains on the pretext that these gains do not exist until they do. are not actually cashed.

It was the Democratic leader of the House of Representatives Nancy Pelosi who indicated on Sunday that this proposal was on the table. “We will probably have a tax on the rich,” she announced on CNN.

US Secretary of the Treasury Janet Yellen admitted on the same channel that “this would make it easier to achieve gains on capital, which represent an extremely important part of the income of the richest people and which currently are not taxed”.

The proposal targets people with more than $ 1 billion in assets or more than $ 100 million in income over three years, or less than 1,000 U.S. taxpayers, according to the Wall Street Journal. Other media mention some 700 billionaires.

– “A turning point” –

If this tax were adopted, it would be a turning point, said Gabriel Zucman, professor at the University of Berkeley in an interview with AFP.

“This is the first time that there has been a tax on billionaires. It is the most progressive tax imaginable,” he said. And, this could “spread oil” in Europe where it is just as easy to “hold a fairly large fortune by being little taxable, either by paying few dividends, or by realizing little capital gains”, a he added.

According to Ms. Pelosi, this tax could generate at least $ 200 billion in revenue over a decade, far from the 3,000 to 3,200 billion in spending over 8 to 10 years wanted by Joe Biden to reform America.

However, this idea is attractive as wealth is increasingly concentrated at the top of the social ladder.

This tax “would tackle a huge breach in our tax code which benefits the very rich,” responded Steve Wamhoff, director of the Institute for Economic and Fiscal Policy.

He emphasizes that the current code “makes sense” for the middle classes, for example those with rental property whose value increases over the years. “No one expects you to pay taxes on the appreciation in value of this asset before selling the property,” he says. “But the situation is very different for billionaires who can choose to leave most of their income in unrealized capital gains so as not to pay taxes.”

Senator Ron Wyden, head of the Senate Finance Committee, who has been working on different versions of the project for two years, is expected to detail the final proposal earlier this week, Pelosi said.

– Far from the account –

Senator Elizabeth Warren, who proposed a more radical version of a tax on these unrealized capital gains last year when she was a presidential candidate, unsurprisingly supports this idea.

Especially since Ron Wyden’s project would target not only stocks but also other assets such as real estate.

Republicans will not bring their voice because they have long opposed such a tax, which they say will create additional bureaucracy and is difficult to implement. Unrealized capital gains fluctuate with the price of the shares. Therefore, will the tax administration have to reimburse the taxes paid if the prices collapse?

On the Democrats’ side, the proposal could be deemed acceptable after the compromises made by President Joe Biden who drastically reduced the amount of his investment plans.

Still, the Biden administration will have to find other sources of funding for its pharaonic programs.

Because the plan “Build Back Better”, “Reconstruire en better” in favor of social and climate measures remains in the order of 2,000 billion dollars over 10 years and that to modernize infrastructure amounts to 1,200 billion.

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