by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Kyle Pomerleau of the American Enterprise Institute documents the various ways President Biden wants to raise taxes.
In his speech, he renewed the push for several of his unfinished legislative tax priorities, such as raising taxes on very high-income households and increasing benefits for families with children.
1. Enact a Minimum Tax on Billionaires
President Biden’s “minimum tax on billioanires,” originally introduced in the administration’s Fiscal Year 2023 budget, would require taxpayers with a net worth of $100 million or more to pay a top-up tax if their effective tax rate on “total income” is under 20 percent. “Total income” would include taxable income plus unrealized capital gains, and the top up tax would be payable over five years, with special rules to value assets with no obvious market price.
The goal of this policy is to raise revenue from very high net worth households and reduce the value of deferral—the ability to delay the tax on unrealized capital gains. The administration believes this policy would raise $360 billion over ten years. However, most of the revenue would come from the one-time tax on unrealized appreciation of currently held assets and would raise much less over the long run. In addition, this policy faces potential legal and administrative challenges.
2. Raise the Excise Tax on Stock Buybacks
The second tax increase mentioned last night was a quadrupling of the 1 percent excise tax on stock buybacks. Some proponents, such as the President, argue that the tax would increase corporate investment by reducing buybacks, but this is a misunderstanding of how investment decisions are made. The tax would raise the cost of capital and decrease investment in the United States. Additionally, it is likely to shrink the tax advantage of stock buybacks over dividends, leading to reduced use of buybacks and increased use of dividends.