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| Tesla CEO Elon Musk gestures as he arrives to visit the construction site of the future US electric car giant Tesla, on September 03, 2020 in Gruenheide near Berlin. |
MAXIM - On October 27, the chairman of the US Senate Finance Committee, Ron Wyden, presented a plan according to which the tax on long-term capital gains should also apply to the "unrealized gains" of exchange-traded assets owned by persons who own assets worth more than $ 1 billion or have received income of $ 100 for three consecutive years mln. How much will the richest Americans pay to the US budget?
On Monday, October 25, when Tesla shares jumped, adding $ 26 billion to Elon Musk's fortune ($ 253 billion), some Democrats in Congress were working on a bill to introduce a new tax on billionaires. Early Wednesday morning, Senate Finance Committee chairman Ron Wyden unveiled a 107-page plan that the federal tax on long-term capital gains should also apply to "unrealized gains" in exchange-traded assets held by individuals holding more than $ 1 billion or more in assets. for three consecutive years, they received income of $ 100 million.
Thus, the unrealized (and therefore never taxed) capital gains of eligible billionaires are taxed again. The Wyden project is expected to take effect in 2022. To understand the scale of the loss, Forbes calculated what would have happened if the tax had already been in effect in 2020, taking as an example the 20 richest billionaires from the Forbes 400 rating, whose assets consist mainly of stocks, including Musk, Jeff Bezos, Mark Zuckerberg. , Bill Gates and Warren Buffett. In theory, they would have to pay the government $ 239 billion.
In 2020, Bezos would have suffered the most ($ 39.7 billion in debt), followed by Zuckerberg with $ 19.9 billion. Wyden's plan gives billionaires five years to pay their first year net tax. and permits this amount to be distributed over five equal tranches.
Musk's shares as of September 3 (this data was used to compile the Forbes 400 rating of 2021) have grown by $ 83 billion since the publication of the rating last year, which means that the Tesla founder would have to pay an additional $ 20 billion in taxes: for the first two years the total the amount would have been $ 29.8 billion. For comparison: according to tax returns received by ProPublica, from 2014 to 2018, Musk paid income taxes in the amount of $ 455 million.
Based on the 2021 Forbes 400 date, the top 20 billionaires would have to shell out another $ 106 billion in 2021. Note that these calculations are correct if we assume that the tax was introduced in 2020, and not in 2022, as stipulated by the bill. In just the first two years of the tax, these billionaires would have to pay $ 345 billion, or about 19% of their combined wealth, assuming they did not make large donations, which the bill also allows.
Unsurprisingly, Musk immediately condemned the new bill, posting several critical tweets on Monday. “Sooner or later, other people's money will run out and they will come for you,” he wrote on Twitter.
Still, Wyden's project seems to leave billionaires with several ways to avoid paying taxes: for example, transferring the risen shares to a charity before the tax is calculated at the end of the first year. And if only exchange-traded assets are taxed annually, hundreds of billionaires with stakes in non-public companies are left on the sidelines. More specifically, 56% of the 400 richest Americans (and 58% of the 777 American billionaires monitored by Forbes) own predominantly non-public assets.
But Wyden hadn't forgotten about them either. In contrast, these assets, which are not listed on the exchange, are taxed (with a “deferral” surcharge) on sale or on certain types of transfers or gifts. For example, the gains included in the value of these assets at the end of the first year, when the taxpayer begins to be taxed on billionaires, will be charged to that year, then interest for all these years will be added to the amount of tax to be accrued for the first year. The total amount of interest will be limited. So, according to the bill, in the year of sale, the total amount of capital gains tax, as well as all deferred interest, cannot exceed 49% of the gain.
Less wealthy billionaires will also receive benefits: they will be able to pay taxes on their shares in public companies worth up to $ 1 billion as if they were non-public assets.
One of the big beneficiaries of the deferral for non-public assets will be Michael Bloomberg, the main donor to the Democratic Party: he has a fortune of $ 59 billion and is the richest American with predominantly non-public assets thanks to his 88% stake in Bloomberg LP.
It is unclear whether cryptocurrencies will be treated as exchange-traded assets (subject to an annual tax) or as non-tradable assets that are taxed only if sold or transferred, potentially exempting billionaires like Sam Bankman-Fried from paying tax. He has earned $ 26.5 billion in several years and is already criticizing the bill on Twitter.
“If you exclude a tax on cryptocurrencies, it can be a bigger problem than an exemption for non-public assets,” says Philip Hackney, professor of tax law at the University of Pittsburgh.
According to David Gamage, a law professor at Indiana University who worked on the bill with Senator Wyden, some, but not all, cryptocurrencies will be taxed, but which ones are still unknown.
The bill, according to its supporters, does not introduce a property tax, which they believe will protect it from being declared unconstitutional: the idea is that it is an income tax applied to unrealized gains and calculated based on current exchange rates, that is, publicly traded assets are valued as if they were being sold at the end of each year.
Billionaires can evade tax by transferring their shares in limited liability companies or trusts to hide the beneficiary. “Wealthy individuals will be looking for tools to place their money in trusts that are exempt at current rates, and the government and the IRS will try to prevent this,” says Philip Hackney, professor of tax law at the University of Pittsburgh.
Wyden is trying to limit the use of trusts for tax evasion: the bill introduces a tax on existing trusts that own assets of at least $ 100 million or receive income of $ 10 million for three consecutive years, and classifies the transfer of assets by a billionaire to certain trusts as taxable sale. Charitable trusts are exempt from asset transfer tax, and special rules apply to trusts with separate beneficiaries (where the beneficiaries are both a charitable organization and an individual).
What about billionaires who paid taxes and then saw their share price plunge? Between 2020 and 2021, shares of mortgage billionaire Daniel Gilbert and casino empire owner Miriam Adelson in Rocket Companies and Las Vegas Sands fell $ 7.6 billion. Wyden's bill would offset any losses they suffered at the end of the year. on account of income for the previous three years, and therefore, they will be able to demand the return of large amounts.
Wyden's bill is controversial even among Democrats. Some Democrats are reportedly considering introducing a 3% “surcharge” tax on those earning more than $ 5 million a year instead of the billionaire tax.
Some are in favor of a previous plan, backed by President Joe Biden, to tax unrealized profits in excess of a certain amount in the event of an entrepreneur's death. Under current law, all assets held by someone at the time of death are “raised” to their current market value, which means that any unrealized profits, even if they reach tens of billions of dollars, are not subject to income tax.
“Billionaires and mega-millionaires can evade taxes in a way that wreaks havoc on the economy,” says Indiana University's Gamage. “There are problems in our tax system, and this is a good first step towards eliminating them.” (Forbes)
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