Joe Biden isn’t a dictionary publisher. But, if he gets his way, the folks in Oxford may need to update their definition of “income.”
Driving the news: The White House on Monday will unveil its annual budget proposal, including a minimum tax on unrealized gains for the wealthiest Americans. For the most part, this would mean taxing vested but unexercised stock.
Be smart: White House budgets are directional wish lists, not mandates. And that’s particularly true in today’s D.C., where Biden has to deal with both the opposition party and in-house wildcards like Sens. Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-Ariz.).
- But, even if this dies on the vine, it reflects how Democrats plan to message during the midterms.
Details: “The Billionaire Minimum Income Tax” would apply to more than just billionaires. Per a White House fact sheet, it would require American households worth at least $100 million to pay at least a 20% minimum tax on all income, realized and unrealized.
- It’s being pitched as a “prepayment” on future capital gains taxes.
- If this sounds kind of familiar, we discussed a similar proposal last fall from Sen. Ron Wyden (D-Ore.).
We’re still awaiting all sorts of specifics, including how that $100 million would be calculated. For example, does it include the value of illiquid assets like fine art or real estate? What about highly volatile assets like cryptocurrencies?
- Would private company stock be valued at exercise price, 409a price or the last outside investment price? This takes on added importance in a bearish tech market, as evidenced by last week’s Instacart revaluation.
- It’s pretty complex stuff, which is a big reason why the IRS has historically taxed Americans on realized cash values.
What to also watch: There are various reports that the WH budget also will include new restrictions on executive behavior in stock buybacks.
- And we’re obviously watching for corporate tax changes, including on top rates, plus if Biden again efforts to equalize long-term capital gains rates with ordinary income (which would be a de facto elimination of beneficial treatment for carried interest).
The bottom line: Tax the rich is usually a surefire winner at the ballot box. But not on Capitol Hill.