Biden’s 2025 Tax Agenda

He’s reprising Elizabeth Warren’s wealth tax on unrealized asset gains

WSJ editorial.

"After the November midterm election, President Biden was asked what he would change in his last two years. “Nothing,” he said, and on Tuesday he proved it by reproposing his Build Back Better agenda in different form. This includes more enormous tax increases that he couldn’t get through even a Democratic Congress.

Start with a reprise of his “billionaire minimum tax.” This is a version of Sen. Elizabeth Warren’s tax on wealth that voters rejected in the 2020 Democratic primaries. “No billionaire should pay a lower tax rate than a school teacher or a firefighter,” the President said with no further explanation. Allow us to fill in the details that Mr. Biden didn’t.

For starters, it isn’t a billionaire tax and it isn’t an income tax. It would apply to households worth more than $100 million in accumulated assets, and its target is wealth. The version the President first proposed in his 2023 budget outline would claim a minimum of 20% from high earners’ “total income,” a contrived term that includes unrealized capital gains on top of actual asset sales.

This means that if your assets rise in value during a year, you will pay taxes on that increase even if you realized no actual gains through a sale. If you lack the ready cash, you might have to sell assets to pay the tax bill or pay later with interest. If your assets fell in value, you would not be able to deduct the full loss from your overall income. Heads the government wins, tails you lose.

The proposal also flouts the Constitution, which says Congress may only impose “direct taxes” if they are apportioned among the states according to their population. The Sixteenth Amendment lets Congress tax income that is “derived” from a “source,” which implies a realization. In precedents going back to 1920, the Supreme Court has never found that the income tax applies to unrealized gains.
New taxes like this also tend to expand beyond the low initial rates that their authors use to get them passed. So it is with the President’s new plan to quadruple the 1% tax on corporate stock buybacks. That 1% came into effect only this year.

Progressives and Florida Republican Marco Rubio have made a bogeyman of buybacks, which businesses use to return profits to shareholders. Chevron CEO Mike Wirth recently defended a $75 billion buyback after President Biden condemned the company for, well, turning a profit. “We delivered on our financial priorities,” Mr. Wirth said. “Returning cash to shareholders, investing capital efficiently, and paying down debt.”

A 1% tax is unlikely to stymie buybacks, but at 4% the disincentive bites harder. Companies might increase dividends as an alternative—at least until Congress raises the 23.8% dividend tax rate. Some companies will resort to making investments with marginal returns, or let the cash pile up rather than invest it. That will hurt economic growth.

The larger Democratic goal here is more political control over private capital. Mr. Biden said the enlarged buyback tax would “encourage long-term investments” instead of returns to investors. When it comes to Chevron and other energy companies, “long-term investments” is code for shifting money toward the green agenda.

Mr. Biden wants more revenue because he’s also proposing trillions of dollars in new social spending. The President pledged Tuesday to “restore the full child tax credit,” a benefit that Democrats temporarily raised to as much as $3,600 per child in 2021. In addition to eliminating up to 300,000 jobs, the full credit would cost about $1.6 trillion in a decade, according to the Tax Foundation.

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Mr. Biden knows that none of this can pass a Republican House, or even come close to getting 60 Senate votes. So why propose it?

The answer is that this is what he plans to campaign on in 2024 and what he would try to pass in 2025 if he wins. His tax campaign will also help to deter a primary challenge from the political left, as the State of the Union cheers from Ms. Warren and Sen. Bernie Sanders attest. Mr. Biden this week revealed his 2024 campaign strategy in plain sight, and when it comes to taxes, voters can rest assured he means to raise them."