Chime Is Eyeing A $45 Billion Debut That Could Be The Fintech Industry’s Next Mega-IPO


Senate Finance Committee Chairman Ron Wyden is known to declare: “There are two tax codes in the US: one for workers who pay taxes out of every paycheck and the other for high-fliers who use games and tricks to stop their taxes.” He’s currently suggesting to create another tax code for the United States, one for billionaires.

Instead of establishing the tax code from scratch for just a handful of individuals, it’s simpler to tackle the game of high-fliers directly by addressing the issues of holding assets until death which permits any appreciation to be exempt from income taxation for the rest of their lives. An easy way to stop this game is to tax capital gains not realized upon death at the same wage earners pay.

Wyden’s billionaire tax on income is the latest concept discussed in Democrats to pay for Biden’s Build Back Better plan. The tax would only apply to those who have over $1 billion of assets and $100 million in income in three straight years. The taxpayers will be required to pay taxes every year for any rise in the worth of their property.

They’d calculate their taxes using mark-to-market accounting, which means they treat their assets that are traded publicly as if they were selling at the close of every year. For instance, let’s suppose that Mark Zuckerberg owns $100 billion of Facebook stock, and the company paid no taxes when he started the company. It would be necessary to be taxed on capital gains for the $100 billion in income even if he did not trade all of his Facebook shares in the initial year. In the following year, he’d have to pay tax on any rise in the value of his shares above $100 billion.

Congress is generally cautious about taxing these transactions due to the complexity of the valuation of assets that are not sold and the difficulties that some taxpayers face in finding the money needed to pay tax.

However, it has made some exceptions. Recently, Congress required securities dealers to mark their inventory. But the dealers had already individually appraised their securities for financial accounting while their stocks were liquid. Therefore, dealers could locate the money to pay tax quickly.

While working at Capitol Hill, I helped to draft the law. However, we had to fight for two years despite having had a blueprint from financial accountants. The staff met hundreds of times with representatives from the industry and the IRS to resolve any issues. Congress approved the mark-to-market system several times before President Clinton eventually signed it into law in 1993.

Mark-to-market for billionaires is more challenging. While only a tiny percentage of taxpayers would have to pay the tax change, many more would need to assess their total assets each year, including their privately owned businesses. Taxpayers in the middle could be able to move into or out of the tax system frequently. How will the IRS determine if billionaires had filed their taxes correctly?

The publicly traded stock might seem simple to appraise; however, what happens to large blocks, that may be impossible to sell? How will the IRS resolve disputes about valuations?

What happens if the billionaire has a high stock portfolio but doesn’t have enough cash to pay the tax. Or, is it unable to obtain large amounts of money to pay for the tax?

How will the law handle losses? If they’re permitted to put them on hold to reduce taxes in the future, capital gains could be recognized earlier, while losses later or never all at all. Perhaps we don’t want to be a billionaire; however, do we care about the economic impact of their taxation in a punitive manner?

Wyden proposed specific rules for assets that aren’t that are traded publicly, such as houses, art collections, or the most crucial thing privately-held companies. In the case of these assets, taxpayers can put off paying taxes until they dispose of or sell them, even at the time of death and then pay tax and interest on the retrospective.

But what happens to the interest obligation if the billionaire tax were to be repealed later? Or what happens to the taxpayer mark-to-market when the entire tax system is found unconstitutional or even illegal?

President Biden suggested a more straightforward method of taxing billionaires. He’d tax gains not realized upon death, which is when assets are appraised as estate tax assets. The requirement that the wealthy acknowledge improvements only once upon death, rather than every year, is more simple and solidly constitutional (the tax is due at the transfer of assets, similar to an estate tax).

Congress still must set a politically acceptable exemption amount. Biden had set his ceiling at $1 million for not realized earnings ($2 million for a couple who are married), that was way not enough. It caused some trembling among advocates for small-scale business owners and farmers, even though Biden gave these companies extraordinary relief. President Trump has proposed taxing gains not realized of more than $10 million when you die.

However, Congress could increase the ceiling too, say, $50 million. This would be a barrier for “small” business owners and farmers.

The gains that are not realized should be taxed at regular rates. This could encourage the wealthy to sell more of their assets over their lives instead of holding them up to the end of their lives. This would be a prosperous fair, equitable, and revenue-raising idea.

- Advertisement -
Avatar photo
Robert Scoble
Robert is the assistant managing editor for HC News, overseeing coverage of markets, companies, strategy and business leaders. Originally from Boston, Scoble began his journalism career in 1997 & now resides outside New York.

Latest articles

Related articles