Corporate leaders who backed President Joe Biden in the 2020 election conveyed deep skepticism that the so-called “billionaire’s tax” Biden proposed in his State of the Union address Tuesday night would ever become law.
The plan would require households with a net worth above $100 million to pay a minimum annual tax of 20% on both their standard taxable income and on gains in the total value of their “tradable assets,” which includes stocks, bonds, mutual funds and other securities.
Under current tax law, securities gains aren’t taxed until the owner sells them. Under Biden’s proposal, the ultra-wealthy would owe an annual tax of 20% on unrealized gains or losses in the value of those assets, whether or not they had actually pocketed that gain by selling them.
The plan is “DOA and stupid to boot,” billionaire investor Leon Cooperman told CNBC in an interview. Cooperman says he voted for Biden in 2020, but he accused Democrats of deliberately misleading people about how the billionaire tax proposal would work.
They “lie about the taxes billionaires pay,” he said, “as they include unrealized gains as part of income.”
White House economist Jared Bernstein disputed this, telling CNBC Wednesday that “unrealized gains” were not what was being taxed.
“What it really is, or at least the way we see, it is a prepayment or withholding tax on future capital gains,” he said Wednesday on “Squawk Box.” The White House didn’t respond to follow-up questions from CNBC about the plan.
The billionaire tax proposal is “completely dead on arrival,” said Charles Myers, a 2020 bundler for Biden’s presidential campaign and the chairman of Signum Global, an investment advisory firm.
Myers said the purpose of Biden’s billionaire tax announcement, however, was never to jumpstart a negotiation in Congress.
“Last night was Biden’s unofficial 2024 reelection launch,” Myers told CNBC in an interview. The billionaire tax plan, he said, was part of his campaign “messaging points.”
“Those tax increases will never get through a Republican House,” added Myers. “Probably not even through a Democratic Senate.”
Closing tax loopholes used by the very wealthy to bring down their effective tax rates has long been a goal of Democrats in Congress. But for some in the party, Biden’s billionaire tax contains a fatal flaw.
“Within the Democratic party, there is dissention regarding how to move this forward, particularly with unrealized gains being part of the equation” said Jake Dilemani, a prominent Democratic political strategist, in an interview Wednesday.
Three lobbyists with ties to Democratic congressional leadership told CNBC they were already hearing indications Wednesday from key lawmakers there is no interest in the House or the Senate for passing a billionaire tax.
When asked about the prospects for the billionaire tax in Congress, a lobbyist close to a top House Democrat simply replied via text with a skull and crossbones emoji and the word “Dead.” The lobbyist spoke on the condition of anonymity to share private conversations.
In the nation’s capital, everyone remembers what happened the last time Biden tried to pass a billionaire tax.
The White House first unveiled the billionaire tax last March as a way to raise revenue for Biden’s ambitious Build Back Better domestic agenda.
Initially, most Democrats in the House and Senate embraced the idea. But a key vote in the evenly divided Senate did not: Just one day after the proposal was unveiled by the White House, West Virginia moderate Democratic Sen. Joe Manchin shot it down.
“You can’t tax something that’s not earned. Earned income is what we’re based on,” he told The Hill newspaper at the time. “There’s other ways to do it. Everybody has to pay their fair share.” A spokesman for Manchin did not return a request for comment.
By early August, most of Biden’s proposed tax hikes on wealthy individuals had been stripped from the legislation that was signed into law as the Inflation Reduction Act, a slimmed down version of Biden’s Build Back Better bill.
If the odds for the bill looked bleak a year ago, when Democrats controlled both chambers and the White House. Now that Republicans control the House, the odds look downright dismal.
“I don’t think anyone realistically expects a billionaire’s tax, in its current proposed form, to come to fruition this year or next,” said Dilemani.
But there is one senator who could dramatically improve the prospects for a billionaire tax, at least in the Senate, if she were to publicly endorse the plan: Sen. Kyrsten Sinema, I-Ariz.
In 2021, as the Build Back Better bill was taking shape, Sinema signaled that she was open to a billionaire income tax proposed by Sen. Ron Wyden’s, D-Ore.
More than a year later, Sinema is still open to the idea, her spokeswoman told CNBC Wednesday.
“As always, Kyrsten welcomes the opportunity to review and discuss changes to the tax code, including this proposal from the President,” Sinema’s spokeswoman Hannah Hurley told CNBC.
The same was true for “the Child Tax Credit, Research & Development expenses, affordable housing credits, and other provisions from the 2017 tax reform law that will expire in 2025,” Hurley wrote in an email.
Yet the reality of GOP control in the House means that, for now, long-shot proposals like the billionaire tax have taken a back seat to debates over the federal budget and the debt ceiling.
With plans for a billionaire tax stalled in Washington, wealth tax advocates and activists are turning to the states.
In January, a coalition of state legislators from eight states launched Fund our Future, “a national effort to move wealth tax measures across the country,” according to the group.
Coalition members hail from California, New York, Washington, Connecticut, Illinois, Maryland, Minnesota and Hawaii, all traditionally blue states where a new wealth tax might have a chance at passing in the legislature.
“The ultra-rich benefit from our communities, from our public infrastructure and the labor of working families,” New York state Sen. Gustavo Rivera, a Democrat, said in a statement released by the group. “And because of our backwards tax system, they can avoid paying the taxes that they owe.”
“We must restructure our tax system for fairness,” he said.