Taxing rich Americans gains steam as Biden and states push plans

Aarthi Swaminathan and Denitsa Tsekova
·6 min read

Several states are unveiling new tax proposals, adding to an effort by the Biden administration and Senate Democrats to tax ultra-rich Americans and corporations.

Lawmakers in California are considering a tax on extreme wealth that would impose an annual excise tax of 1% on those who have wealth exceeding $50 million per taxpayer and a 1.5% tax on those with wealth above $1 billion. The tax would raise an estimated $22.3 billion starting in 2023. New York and Washington are also looking at new taxation targeting ultra-wealthy individuals.

“This is the way that we get back to a California where everybody has an opportunity, and I don’t know a single business leader or moderate who doesn’t believe in that,” Assembly Member Lorena Gonzalez (D-San Diego) said during a press conference on Tuesday. “It’s time to do something about it and quit b***ing, quite honestly.”

Read more: Taxes: Here's how to know if you should itemize

On a national level, the Biden administration and Democratic lawmakers are floating several different tax measures related to higher taxes for wealthy Americans and corporations.

President Biden recently told Good Morning America that "anybody making more than $400,000 a year will see a small to significant tax increase" under the tax plan his administration is developing. “If we just took the tax rate back to what it was when Bush was president — the top rate paid 39.6% in federal taxes," Biden added, "that would raise to $230 billion."

Sen. Elizabeth Warren (D-MA) recently reintroduced her proposal on taxing the ultra-rich.

“I know Senator Warren has put forward a wealth tax, and the president shares her view that middle-class families are paying more than their fair share and those at the top are not doing their part,” White House Press Secretary Jen Psaki said at a press conference on Monday. “Certainly he has that shared objective.”

WASHINGTON, DC - MARCH 10: U.S. President Joe Biden speaks during an event with the CEOs of Johnson & Johnson and Merck at the South Court Auditorium of the Eisenhower Executive Office Building March 10, 2021 in Washington, DC. President Biden announced that the government will purchase 100 million more doses of the Johnson & Johnson COVID-19 vaccine. (Photo by Alex Wong/Getty Images)
U.S. President Joe Biden speaks during an event with the CEOs of Johnson & Johnson and Merck at the South Court Auditorium of the Eisenhower Executive Office Building March 10, 2021 in Washington, DC. (Photo by Alex Wong/Getty Images)

'Something we've never done in the United States'

The proposed wealth taxes in California and Washington state are similar to Warren’s plan and would impose an annual tax rate on income above certain thresholds.

“Since the start of the pandemic, billionaires have accumulated an additional $1.1 trillion in wealth,” Assembly Member Alex Lee (D-San Jose) said. “In order for California to really come back roaring, we need sizable investments in our communities… we’re proposing a modest 1% tax on households with net worths of over $50 million, and 1.5% on wealth over $1 billion.”

Critics of the wealth tax say it may be difficult to calculate and be enforced. The revenue generated might not be as much as expected while the costs of administering the tax could be higher than calculated.

“Taxing wealth is something we've never done in the United States and that most countries have not done,” Jared Walczak, the Tax Foundation's vice president of state projects, told Yahoo Money. “They're complex and they create a lot of economic harm because they're paid on your assets — which often have to be liquidated to pay them.”

While wealth taxes reached their peak in OECD countries in the 1990s, the number of OECD countries that currently have a wealth tax dropped to five from 12 by 2019 because of the challenges those taxes create.

The proposed plan in New York — which includes raising income taxes, imposing new capital gains taxes, and increasing the estate tax among other measures — is similar to President Joe Biden's campaign plan to raise the corporate tax rate to 28%, require a true minimum tax of 21% on all foreign earnings on U.S. companies, raise the top individual income tax rate to 39.6% (the current maximum is 37%), and require those who make more than $1 million annually to pay the same rate on investment income as they do on their wages.

The top 5% would bring in most of the tax revenue. (Graphic: David Foster/Yahoo Finance)
The top 5% would bring in most of the tax revenue. (Graphic: David Foster/Yahoo Finance)

'We create more billionaires than anywhere in the world'

This isn’t the first time California has proposed a wealth tax on its richest residents: Last year, a similar bill to levy a 0.4% tax on the wealthiest who have a net worth of more than $30 million did not garner enough support.

The new proposal, instead, raises that to a 1% tax on individuals who earn more than $50 million per year.

“California has 12% of the U.S. population, but 25% of all billionaires,” economist Emmanuel Saez, who worked with Warren on her wealth tax proposal, said at the Tuesday press conference. “Their total wealth is now about $1 trillion… about half of the $22 billion wealth tax would be paid by 170 California billionaires.”

Gonzalez noted that “in California, we create more billionaires than anywhere in the world, yet we still have people living on the streets, we still have schools that are underfunded."

Miguel Santiago, a Democrat who represents Los Angeles, added: “When we talk about a wealth tax, we talk about striking at the heart of income inequality… a lot of people in our communities have fallen back… [while] those who are ultra-wealthy could afford a quarantine in their multi-million dollar homes or their yachts… it’s not a radical idea to uplift people out of poverty.”

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Entrepreneur Joe Sanberg, a progressive activist who has also pushed for a $15 federal minimum wage, also joined the call and stressed that he was passionate about this initiative as he sees it boosting economic growth in the state.

Washington's wealth tax would only target intangible financial instruments, meaning that investments and ownership in publicly traded companies would be taxed but not houses or business ownership. Walczak noted that the Washington state wealth tax would only affect 12 billionaires.

“If any one of them were to leave the state, or make another state their state of residence, the tax revenue would plummet on this,” he said. “Not just the revenue from this new wealth tax, but also potentially all of the other taxes.”

Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova

Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami.

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