Tangle - The billionaire tax.

Episode Date: October 28, 2021

Earlier this week, Democrats released a new proposal that they said will help them pay for their infrastructure and reconciliation bills: A billionaire income tax (BIT). The legislation was drafted by Senate Finance Committee Chairman Ron Wyden (D-OR), who said the new bill would impact about 700 billionaires who earn "over $100 million in annual income for three consecutive years or who have more than $1 billion in assets," according to CNBC. Wyden says the changes would raise hundreds of billions of dollars in new revenue.Our newsletter is written by Isaac Saul, edited by Bailey Saul, Sean Brady, Ari Weitzman, and produced in conjunction with Tangle’s social media manager Magdalena Bokowa, who also created our logo.The podcast is edited by Trevor Eichhorn, and music for the podcast was produced by Diet 75.You can support our podcast by clicking here.--- Send in a voice message: https://podcasters.spotify.com/pod/show/tanglenews/message Hosted on Acast. See acast.com/privacy for more information.

The flu remains a serious disease. Last season, over 102,000 influenza cases have been reported across Canada, which is nearly double the historic average of 52,000 cases. What can you do this flu season? Talk to your pharmacist or doctor about getting a flu shot. Consider FluCellVax Quad and help protect yourself from the flu. It's the first cell-based flu vaccine authorized in Canada for ages 6 months and older, and it may be available for free in your province. Side effects and allergic reactions can occur, and 100% protection is not guaranteed. Learn more at flucellvax.ca. From executive producer Isaac Saul, this is Tangle.

Good morning, good afternoon, and good evening, and welcome to the Tangle Podcast, a place where you get views from across the political spectrum, some independent thinking without all that hysterical nonsense you find everywhere else. I am your host, Isaac Saul, and on today's episode, we are going to be talking about the billionaire tax, the new billionaire income tax proposal that has been brought forward by Democrats this week. Before we jump into that and what people are saying about it, we are going to start with some quick hits. First up, the U.S. economy slowed to a 2% growth rate last quarter, well below the 2.6% predicted by economists. Number two, Democrats dropped a paid family and sick leave proposal from their reconciliation bill in order to reduce the bill's overall cost. Number three, Iran said it will return to talks on a nuclear deal in Vienna next month. Number four, the U.S.

issued its first ever passport with ex-gender designation for people who don't identify as male or female. Number five, a judge rejected a request from New York City police officers to stop a vaccine mandate for cops. All right, that's it for today's quick Hits, which brings us to our main story, the billionaire tax. Earlier this week, Democrats released a new proposal that they said will help them pay for their infrastructure and reconciliation bills. A billionaire income tax, or BIT, was drafted by Senate Finance Committee Chairman Ron Wyden, the Democrat from Oregon, who said the new bill would impact about 700 billionaires who earn over $100 million in annual income for three consecutive years or who have more than $1 billion in assets. Wyden said the

changes would raise hundreds of billions of dollars in new revenue. Here's how it would work. Right now, investors pay capital gains taxes when they sell an investment and realize a gain. Many investors avoid this tax by holding on to investments until they die and then passing those investments on to their heirs without ever paying capital gains taxes. While holding on to the investment, they can borrow money against their investment portfolio without selling anything off. The low- interest loans they take out can't be taxed and aren't reported as income, and this allows them to live sort of their lavish, rich lifestyle without paying any capital gains tax. Wyden tries to address this tax disparity by eliminating these loopholes and making billionaires pay taxes on the gains or take

a deduction for a loss on the tradable assets they're holding onto, whether they sell them or not. According to CNBC, it would not apply to assets like real estate or a business interest, which would be taxed as capital gains when they are sold or transferred to someone else, or when the owner dies. Owners would also be charged interest. That can mean some very large tax bills for a few households. In a simple example, if an impacted taxpayer had $1 billion in tradable assets that grew to $2 billion over the course of one year, they would pay $238 million in taxes at the 20% top capital gains rate plus the 3.8% net investment income tax. Okay, I know that's a lot of numbers

to throw at you, but basically what you need to know is that if this tax were implemented, billionaires would pay a lot of money. Will it happen? We'll see. Wyden's plan is already facing stiff opposition, not just from Republicans, but even from Democrats in the House, including his counterpart, the Ways and Means Committee Chairman Richard Neal, who said that it might be too complex to even institute as law. There are also questions about whether the proposal is even legal, given that the Constitution calls for apportioning direct taxes among states. Remember, the 16th Amendment introduced an exemption that allowed federal income taxes without apportionment. That's how the federal government is allowed to tax their income. Opponents argue that unrealized capital

gains are not income and can't be taxed. This whole thing is further complicated by the fact there are no known billionaires in some states, which means that apportioning the revenue among states would be impossible. The White House is struggling to get a unified Democratic front on how it plans to pay for its $1.9 trillion infrastructure plan and a reconciliation bill that could cost more than $1.5 trillion. The Biden administration has already endorsed instituting a 15% corporate minimum tax rate and tougher enforcement of tax laws as well. This morning, news broke that Biden would soon be announcing a plan, including a way to pay for it, that he claimed would win the support of centrist holdouts. But details of that plan are not yet known, and congressional reporters are rightly

skeptical that the announcement could just be some White House spin. As we're recording this podcast, President Biden is meeting with congressional Democrats in an apparent effort to sell them on this new plan. Below, we'll take a look at some reactions to the billionaire tax proposal from the left and the right, and then my take. All right, first up, we'll start with what the left is saying. So the reactions from the left, much like in Congress, have been somewhat mixed. Some people are arguing that it's a good option, but the least good option. And others are saying that it's simply time to make billionaires pay their fair share. And this is a good way to do it.

In The Hill, Chuck Collins, the author of The Wealth Hoarders, wrote supportively about the bill. Since March of 2020, the beginning of the pandemic, 745 U.S. billionaires have seen their total wealth increase by $2.1 trillion, a gain of 70 percent, Collins said. Experts predict this tax would increase an estimated $200 billion to $250 billion over 10 years, a sum that would still leave U.S. billionaires with more money than they could ever manage to spend. This group of America's 700 or so wealthiest people now holds a total of $5 trillion. When have they enjoyed the biggest bump in their combined fortunes? That would be during a pandemic that has infected over 45 million

and killed 725,000 in the United States alone. Pandemic wealth gains, along with the recent exposés on billionaire tax avoidance, have set the stage for this targeted and politically popular tax on billionaires, he said. On September 23rd, the White House released findings that 400 wealthiest billionaires paid an average effective federal income tax rate of just 8.2 percent. That's much less than the 14 percent average for ordinary taxpayers. Nothing will address extreme wealth inequality like a billionaire income tax, and there's no better time to ensure that billionaires pay their fair share. In the Washington Post, Paul Waldman said we are once again, quote, required to ruminate on the delicate psychology of the afflicted billionaire who, in Republicans telling, is always moments away from liquidating his assets

and decamping to a mountaintop ashram in despair. We're supposed to believe that Elon Musk, whose net worth now approaches $300 billion from his stock and Tesla, will tell his board of directors if I have to pay more in taxes, then I'm done with stocks. From now on, I want you to pay me in ranches, Waldman wrote. We hear these arguments from Republicans every time a tax increase on the wealthy is proposed. There will be a billionaire strike and the entire economy will collapse. We heard it when Bill Clinton signed a tax hike on them and when Barack Obama did. Yet there was no mass exodus of the wealthy either time. What do the super wealthy actually do when faced with a tax increase? They use armies of accountants and tax lawyers to pay as little of that increase as possible.

According to the White House, billionaires pay an average of just 8.2% in federal income taxes. They don't leave the country or shut down their businesses, Waldman wrote. And, of course, there's a flip side to the Republican argument about the sensitivity of billionaires to tax changes. If we cut their taxes, the billionaire class will erupt like a volcano of prosperity, showering so much new wealth upon us that it will usher in an age of human flourishing unknown to the annals of history. That doesn't happen either. It didn't happen when Donald Trump signed a big tax cut or when George W. Bush did. In Bloomberg, Alexis Leondis said Wyden's proposal is a complex

plan bound to hit legal roadblocks and create logistical headaches. Fortunately, she said, there's a sounder idea for targeting the more than $5 trillion America's billionaires have earned yet have paid relatively little taxes on. It's based on a plan that was part of President Joe Biden's revenue proposals earlier this year. Instead of taxing the wealthiest each year, as Wyden would do, Biden's original plan would tax them upon their death. According to legal scholars, there's no legitimate constitutional challenge to tax at death. The estate tax has long been established as constitutionally viable, and taxing unrealized gains at death is in that same vein, since it involves a transfer of property. There are other benefits, too, to using Biden's strategy, Leondis said. Lawmakers wouldn't have to worry about things like how to

account for losses in one year or the different treatment for liquid and illiquid assets. These accommodations generally lead to loopholes and opportunities for exploitation. All right, so that's it for what the left is saying. Here is the right's take. The right is opposed to the plan, saying it is both unconstitutional and will damage the economy. In USA Today, James R. Robbins said Democrats are frantically trying to find a way to pay for the reconciliation package, so they're proposing something unconstitutional. Wyden is open about the class envy angle of this proposal, since billionaires do not generate much sympathy these days. Democrats think this is good politics. Maybe so, but there's a problem. It is unconstitutional, Robbins wrote. Article 1, Section 9 of the

Constitution forbids the government from laying a capitation or other direct tax unless in there's a problem. It is unconstitutional, Robbins wrote. Article 1, Section 9 of the Constitution forbids the government from laying a capitation or other direct tax in less in proportion to the census. According to Alexander Hamilton, this comprises taxes on lands and buildings, general assessments, whether on the whole property of individuals or on their whole real or personal estate. This ban was the basis for the Supreme Court declaring income taxes unconstitutional in Pollock v. Farmers Loan and Trust Corporation in 1895. Chief Justice Melville Fuller noted that nothing can be clearer than what the Constitution intended to guard against was the exercise by the general government of the power of directly taxing persons and property. The Pollock case gave rise

to the 16th Amendment, ratified in 1913, which carved down an income tax exception for the general ban on direct taxes. But the income tax amendment cannot be read to authorize a federal wealth tax, even on those nasty billionaires. The federal government simply lacks the power to take your property directly. On top of being unconstitutional, it's not always going to be a tax on billionaires, the Wall Street Journal editorial board argued. The first income tax enacted after ratification of the 16th Amendment in 1913 had seven tax brackets with rates from 1% on income over $3,000, which is about $83,000 in current dollars, to 7% on income exceeding $500,000, about $14 million in current dollars. You know what the tax rates are now, the board wrote. The alternative minimum tax is also only applied initially to the richest Americans,

but with time expanded to hit millions in the middle class. The flu remains a serious disease. Last season, over 102,000 influenza cases have been reported across Canada, which is nearly double the historic average of 52,000 cases. What can you do this flu season? Talk to your pharmacist or doctor about getting a flu shot. Consider FluCellVax Quad and help protect yourself from the flu. It's the first cell-based flu vaccine authorized in Canada

for ages six months and older, and it may be available for free in your province. Side effects and allergic reactions can occur, and 100% protection is not guaranteed. Learn more at FluCellVax.ca. Maybe the only impediment to extending the wealth tax more broadly is the challenge of administering it, the board said. Even House Ways and Means Chairman Richard Neal acknowledges it would be a logistical

nightmare. Details of Mr. Wyden's plan haven't been released, so it's not clear if the tax would apply to non-financial assets like artwork, jewelry, and intellectual property. If so, more Americans could get soaked since the IRS will no doubt inflate the value of non-financial assets, as it often does with the estates of high earners. In The Hill, Liz Peek said Biden and Democrats are lying about their wealth taxes. And when most recently, Treasury Secretary Janet Yellen describes Democrats' latest brainstorm for raising revenue, a tax on 700 of America's wealthiest people, as not a wealth tax, she's playing us for chumps, Peek wrote.

Yellen wants us to believe that unrealized capital gains are income. That is not true. If you have a stock that doubles in value, pumping up your investment portfolio, you feel pretty chipper and indeed wealthier. But unless you actually reap that gain by selling your shares and receiving the proceeds from the buyer, you can't buy a ham sandwich. Yellen knows that, and she also must know that a wealth tax may be unconstitutional as well as unproductive. She is simply playing ball with Democrats who have not only egg but entire omelets on their faces. The truth is that Democrats are battling each other over Biden's bill because voters are not on board with spending trillions more

on top of the $5 trillion already doled out on COVID-19 relief. They're worried about inflation and think huge government outlays contribute to the problem. all right that is it for the right and the left's take and this is my take so the posturing and politicking and process of crafting this reconciliation bill has led to a lot of ideas about how to pay for it, and thus a lot of talk about taxes. I've said repeatedly that, like commentary on inflation, economists are great at contradicting each other and themselves while obscuring the truth. On this proposal, though, there seems to be a bit more clarity. There are a few arguments against the billionaire tax that stick with me the most. The first, and the most obvious, is that it simply

isn't constitutional. The legal commentary on the proposal along with Supreme Court precedent makes me think relying on this idea to pay for the bill is basically a suicide mission, one Democrats won't come out of unscathed. The next best argument is that implementing it, working it, and then actually collecting the tax revenue would be so arduous and so difficult that relying on the bill as a means to raise revenue is similarly risky. That's not a Republican talking point either. It's coming from the Democrats' top finance guy in the House of Representatives. I have to confess I also find it difficult to believe that it will only apply to 700 billionaires, at least after a few years. I went to bed after laying out the framework for this newsletter last night, and by the time I woke up, the idea had

already been swapped out for a surtax on millionaires this morning. Historically speaking, one thing you can almost guarantee about tax is that the number of people they will apply to will only grow over time. These facts alone are enough for me to be cold on the idea, to say the least. That's not to say there aren't rebuttals. For instance, if the IRS can tax hundreds of millions of people every year, what would be so hard about tracking 700 people's stock gains? And if the contours of the idea are unconstitutional, why not just change the law or change the framework of the bill so it holds water? Certainly you're not going to find a bunch of sympathy from me

on billionaires losing an extra few hundred million dollars every year. Still, if your plan can't gain support from allies in your own party, looks unconstitutional on the face of it, and would probably be so difficult to implement that tax experts are wondering whether it'll work at all, it's probably not a good plan. It's not a good look for the party either, as it gives the impression, or perhaps reveals the reality, that Democrats are both divided and flailing while trying to come up with a plan that even presents the illusion they can pay for the spending they are proposing. They may have been better off just selling the public on the idea

that adding to the debt was worth it rather than trying to convince us the proposals would cost zero dollars. For whatever it's worth, Bloomberg's Alexis Leondis made the compelling case that Biden's original plan, the one he ran on, which is taxing these gains at death, is both legal and simpler to implement. Maybe it's time for the president to revisit his campaign notes. All right, that's it for my take. And while we're talking billions, I thought it might be worthwhile to point out $1 billion is $1,000 million. If you divided $1 billion by 365 days, you could pay yourself $2.7 million every single day. That's $1,875 every minute or an hourly rate of $112,500. It's a lot of money,

but you know what's not a lot of money? Supporting Tangle. You can pledge to sign up and support Tangle's podcast for just $5 a month or $9 a month, depending on how generous you're feeling. All you have to do is go to that episode description and click the link at the bottom. All right, that's it. Next thing for today is our reader question. This one comes from Eric in Fairfax, Virginia. He said, yesterday, the Wall Street Journal editorial board published a letter to the editor from former President Donald Trump. In it, Trump made several claims about election fraud that have been widely debunked or discredited, but the Wall Street

Journal published the letter anyway without any context. What did you think of that decision? I actually tweeted about this yesterday. I thought it was irresponsible. The Wall Street Journal is one of the finest papers on the planet, and usually it's the first thing I open in the morning. Their news teams are stellar, and they are also increasingly frustrated with the editorial side of the paper, which Tangle also cites frequently even today. The Wall Street Journal editorial board is one of the things I probably cite the most in what the right is saying because they are in a very authoritative voice for mainstream Republicans today. But despite loving the Wall Street Journal and finding their opinion section especially engaging and interesting, I was pretty floored when they published it with

no additional context. Philip Bump from the Washington Post wrote a great article about all the ways the Trump letter could have been fact-checked or debunked. Typically, when you publish an op-ed or write a letter to the editor in a newspaper, they will push back on writing to ensure it meets certain editorial standards. I've submitted tons of opinion pieces to newspapers, and editors write you back and forth. They say, we can't publish this. Can you explain this? Can you support this? If they had done this with Trump's letter, it would not have looked the way it looks. It appears no such process took place here, and the Wall Street Journal refused to comment on the justification for publishing it as is. The only conclusion I can come to is that they knew people would click the link

and probably subscribe when they ran into the paywall to access the piece, which is exactly the kind of perverse incentive that led me to create Tangle in the first place. So, no, I'm not a big fan. All right, that brings us to our story that matters for today. This one comes from the Boston Globe, which came out with a new story about a study on the 2020 election showing that college students voted in record numbers. 66% of college students voted in the 2020 race, which was up 14 points from 2016, a much larger increase than we saw in any other age bracket.

For years, politicians have been trying to mobilize younger voters, and despite many elections hyping potential turnout, have most often failed. This time, though, it appears we could have witnessed an actual surge in turnout and are perhaps witnessing the beginning of increased civic engagement from younger voters. This is just another indication that Gen Z is coming of age with real purpose, John Volpe, who is the director of polling at the Harvard Kennedy School Institute of Politics, said. The Boston Globe has a great story about that up on its website today. said. The Boston Globe has a great story about that up on its website today. All right, that brings us to today's numbers section. 2,755 is the number of billionaires in the world. 724 is the estimated number of billionaires in the U.S. as of 2020. 698 is the

estimated number of billionaires in China as of 2020, which is the second most behind only us. 189 is the estimated number of billionaires in California, the highest of any state in America. Six is the number of states with zero billionaires. That's Alabama, Alaska, Delaware, New Hampshire, New Mexico, and Vermont. And $13.1 trillion is the estimated combined net worth of the world's billionaires. That is a lot of money. All right, everybody, last but not least, our have a nice day section. Yesterday, Merck, the pharmaceutical company, announced a royalty-free license for its promising COVID-19 pill to a United Nations nonprofit

that will allow the medicine to be manufactured and sold cheaply in the world's poorest countries. The agreement will allow companies in 105 countries, mostly from Africa and Asia, to begin making the pill. Merck reported this week that the medicine halved the rate of hospitalizations and death in high-risk COVID patients, and advocates who are hoping the pill can become widely available say it will aid nations where COVID-19 vaccines are in short supply. This story is from the New York Times today. You can go check it out on their website. All right, that is it for today's podcast. I hope everybody in the Northeast is staying warm out there. It's getting chilly. Fall, winter is settling in. As always, if you want more, please go to readtangle.com, check us out, check out the episode description to donate and punch

that five-star rating if you're listening on Apple Podcasts or anywhere else you can rate podcasts. Thank you guys so much, and we will see you next week. Our newsletter is written by Isaac Saul, edited by edited by bailey saul sean brady ari weitzman and produced in conjunction with tangle's social media manager magdalena bakova who also helped create our logo the podcast is edited by trevor eichhorn and music for the podcast was produced by diet 75 for more from tangle subscribe to our newsletter or check out our content archives at www.readtangle.com. We'll see you next time. What can you do this flu season? Talk to your pharmacist or doctor about getting a flu shot. Consider FluCellVax Quad and help protect yourself from the flu. It's the first cell-based flu vaccine authorized in Canada for ages 6 months and older, and it may be available for free in your province. Side effects and allergic reactions can occur, and 100% protection is not guaranteed.