Billionaire tax: ‘There are more efficient ways’ to make the rich pay more, economist says

Tyler Goodspeed, The Hoover Institution at Stanford University Kleinheinz Fellow & Former Acting Chairman and Vice Chairman of the Council of Economic Advisers, joins Yahoo Finance Live to discuss President Biden's proposed billionaire tax, interest rate hikes, deficit reduction, and inflation.

Video Transcript

- Tax hikes are at the heart of President Biden's 2023 budget proposal, a $5.8 trillion budget that's said to reduce the deficit by more than $1 trillion over 10 years. So the heart of this proposal includes an increase in the corporate rate from 21% to 28%. But the real signature on the tax proposal is a billionaire tax, a minimum of 20% on households worth more than $100 million.

So let's talk about this with Tyler Goodspeed from the Hoover Institute at Stanford, former Vice Chair of the Council of Economic Advisers. Tyler, good to see you. Real quickly, I want you to hear how the White House characterized these tax changes earlier today on Yahoo Finance.

HEATHER BOUSHEY: And so in putting this in place, we really will make sure that it's a fair tax system, a more progressive system, and that those at the top are doing their part to ensure the solvency of the American budget.

- OK, Tyler, your reaction.

TYLER GOODSPEED: I think my main reaction is it strikes me as a little bit gimmicky in an election year. Look, if you think that billionaires should be paying more in taxes, then I think you should be seriously considering an elimination of the step up in basis at the time that the estate tax is levied.

They tried that in the Build Back Better plan. They didn't have the votes to get it through, and that's why they axed it. And so I think in the absence of elimination of step up in basis, that's why we see these sorts of election year gimmicks.

- Forbes analyzed the 25 richest Americans from 2014 to 2018 on wealth of more than $400 billion paid a true tax rate of 3.4%. Are they paying enough?

TYLER GOODSPEED: I mean, there's a bit of a normative question there. Certainly, if you look at the distribution of taxes paid in the United States, a vastly disproportionate volume of tax revenue comes from the top 0.1% of tax filers. Look, I think if you do think that the highest income households, the wealthiest households in the US, should pay a higher tax burden, then there are more efficient ways to do that.

There are lots of issues when you start taxing unrealized capital gains. How do you, how do you value some of those assets? A lot of those assets are not perfectly liquid. And how do you handle cash flow issues that some of these folks may have to liquidate some of those assets, some of those illiquid assets, in order to pay that tax liability even if it's stretched out over several years.

I think there are more efficient ways to go about making sure that the highest income tax, highest income households are paying their fair share.

- Yeah, Tyler, you bring up a good point about those unrealized gains. More from you on the implication of taxing unrealized gains, which the IRS does not do, and what is the likelihood of any of this passing?

TYLER GOODSPEED: Right, so I think at the end of the day, the probability of this stuff passing is pretty close to zero. They tried very hard in 2021 to get a similar agenda passed. They weren't able to get 51 votes, 50 votes to do it. And so I think it's a low probability that we see it happening this year. And that's why I think it is, for the most part, election signaling, that this is a political document first and foremost.

- Yeah, even the president has said this is a statement of values which says, what are his values to you when it comes to taxes, Tyler?

TYLER GOODSPEED: Well, so this is where I think that their, that the budget falls a bit flat. So the president and the White House said that their priorities were fiscal responsibility, strengthening security, and implementing their Build Back Better agenda, so inclusive growth for all.

Well, if we look at the deficit reduction, that is very flattered by their interest rate assumptions, which are already outdated. Interest rates have risen much further in 2022 alone than they forecasted, then they are forecasting in this budget. And their GDP assumptions are well above market consensus.

If we look at strengthening security, yes, they increase defense spending by 4%. But inflation is running at 8%. So that means in real terms, they are proposing to reduce military spending.

And then on the Build Back Better priority, I say again, they tried in 2021. And I don't see the math in Congress being any friendlier to them in 2022.

- And it doesn't appear there's much in here about Build Back Better. Finally, president's at 40%, an all time low according to NBC News poll. And inflation is clearly his biggest issue. How much blame does the president deserve for inflation? Is there anything you believe his administration can do to get us out of it?

TYLER GOODSPEED: Well, certainly I think fiscal policy, and that means the White House, has a lot of responsibility because in March 2021, when we were already about 11 months into a recovery, they passed a fiscal stimulus equal to 10% of the US economy. And that's why we saw in March, demand for goods increased at a 240% annualized rate. That is just a ton of demand.

And at the same time they implemented some measures that further impaired the supply side recovery, particularly in the labor market. And yes, the Federal Reserve accommodated that fiscal expansion. But at the end of the day, that was the responsibility of a Democratic Congress and a Democratic White House.

- All right. We'll have to leave it there. Tyler Goodspeed Vice, former Vice Chairman of the Council of Economic Advisers from the Hoover Institute at Stanford. Thank you, Tyler.