Plan Details
The plan, which would take effect in 2022, requires billionaires to pay taxes on all their appreciated tradable assets to date. However, they can elect to spread that cost over five years. Taxpayers who face losses on their portfolio in a year will get breaks that they can apply to up to three years in the past, or indefinitely in the future, to offset tax bills.
Pass-through entities, where a billionaire holds at least a 5% stake, or one valued at $50 million, would have to report the gain of the assets so taxpayers can’t hide assets in other entities. There also are rules that would tax transfers from billionaires to trusts so they can’t avoid taxes using complex wealth planning.
In addition, billionaires who want to give up their U.S. citizenship would be required to pay taxes on their entire fortunes before expatriating.
Some Democratic lawmakers already worry that that plan is too complex and risks unintended consequences.
Warner’s Concern
“The devil is in the details,” Senator Mark Warner, a Virginia Democrat, told reporters Tuesday. “We all want to make sure those who have done extraordinarily well pay a fair tax, but how you do it is really important.”
House Ways and Means Chairman Richard Neal has also raised concerns about the plan’s constitutionality and said that when his panel looked into similar ideas, potential legal problems led members to reject the approach.
Indiana University law professor David Gamage said Wyden’s proposal could likely withstand court challenges.
“If you take existing precedents seriously, it’s quite safe,” he said. Focusing the yearly mark-to-market levy only on tradable investments, as Wyden’s plan does, is on firmer legal ground than an alternative such as taxing the annual gains of all private and public assets, he said.
Another question is how the IRS would find billionaires who should be subject to the tax, because there currently isn’t a requirement for people to report their total net worth to the IRS. Senator Elizabeth Warren, who helped Wyden develop the plan, said these are issues the Internal Revenue Service can tackle.
“This is not an insurmountable problem for the IRS,” Warren said. “This is a manageable undertaking.”
Still, some lawmakers are optimistic a broader agreement on a spending package is in reach.
“I think that we’re close, and I hope we’ll have a deal by the end of the day,” Senator Chris Murphy, a Democrat from Connecticut, told CNN on Wednesday morning.
—With assistance from Erik Wasson, Ben Steverman and Josh Wingrove.
This article was provided by Bloomberg News.