Business leaders backing President Joe Biden in the 2020 election expressed deep skepticism that the so-called “billionaires’ tax” proposed by Biden in his State of the Union address Tuesday night will become law.
The plan requires households with a net worth of more than $100 million to pay a minimum annual tax of 20% on standard taxable income and gains on the total value of their “tradable assets,” which include stocks, bonds, mutual funds and other securities.
Under current tax law, gains on securities are not taxed until the owner sells them. Under Biden’s proposal, the super-rich would have a 20% annual tax on unrealized gains or losses in the value of those assets, whether or not they made a profit by selling them.
The plan is “DOA and stupid to boot,” billionaire investor Leon Cooperman told CNBC in an interview. Cooperman said he was voting for Biden in 2020, but he accused Democrats of deliberately misleading people about how the billionaire’s tax proposal would work.
They “lie about the taxes billionaires pay,” he said, “because they include intangible benefits as part of their income.”
White House economist Jared Bernstein disputed this, telling CNBC Wednesday that “unrealized gains” are not what are taxed.
“Is it really, or at least the way we read it, is prepayment or withholding tax in the future of capital gains,” he said on “Squawk Box.” The White House did not respond to follow-up questions from CNBC about the plan.
The billionaire tax proposal was “dead on arrival,” said Charles Myers, a 2020 bundler for Biden’s presidential campaign and chairman of Signum Global, an investment advisory firm.
Myers said the goal of Biden’s billionaire tax announcement was never to begin negotiations in Congress.
“Last night was the unofficial launch of Biden’s 2024 re-election bid,” Myers told CNBC in an interview. The billionaire’s tax plan, he said, was part of a “messaging point” campaign.
“These tax increases are not going to make it through the Republican House,” Myers added. “Probably not through the Democratic Senate.”
Closing tax loopholes used by the very wealthy to lower effective tax rates has long been a goal of Democrats in Congress. But for some at the party, Biden’s billionaire taxes contained a fatal flaw.
“Within the Democratic Party, there is disagreement about how to move forward with this, especially with unrealized gains as part of the equation,” Jake Dilemani, a prominent Democratic political strategist, said in an interview Wednesday.
Three lobbyists with ties to Democratic congressional leaders told CNBC that they had heard indications Wednesday from key lawmakers that there was no interest in the House or Senate in taxing billionaires.
When asked about the prospect of a billionaire tax in Congress, the lobbyist close to top House Democrats simply replied via text with a skull and crossbones emoji and the word “Dead.” The lobbyist spoke on condition of anonymity to share private conversations.
In the nation’s capital, everyone remembers what happened when Biden tried to pass the 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.
At first, most Democrats in the House and Senate embraced the idea. But the key vote in the Senate was not evenly divided: Just one day after this proposal was presented by the White House, West Virginia Moderate Democrat Senator Joe Manchin was taken down.
“You can’t tax something that you don’t get. Earning income is what we are based on,” he told The Hill newspaper at the time. “There’s another way to do it. Everyone should 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 for the wealthy had been removed from legislation that was signed into law as the Inflation Reduction Act, a watered-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 bleak.
“I don’t think anyone expects the billionaire tax, in the form it’s currently being proposed, to be implemented this year or next,” Dilemani said.
But there is one senator who can dramatically improve the prospects for the billionaire tax, at least in the Senate, if he publicly approves the plan: Sen. Kyrsten Sinema, I-Ariz.
In 2021, when the Build Back Better bill was being formed, Sinema signaled that he would open the billionaire income tax proposed by Sen. Ron Wyden, D-Ore.
More than a year later, Sinema is still open to the idea, a spokesperson told CNBC on Wednesday.
“As always, Kyrsten welcomes the opportunity to review and discuss changes to the tax code, including this proposal from the President,” Sinema spokeswoman Hannah Hurley told CNBC.
The same is true for the “Child Tax Credit, Research & Development, affordable housing credits, and other provisions of the 2017 tax reform law that will expire in 2025,” Hurley wrote in an email.
But the reality of GOP control of 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 to tax billionaires stalled in Washington, wealth tax lawyers and activists are returning to the states.
In January, a coalition of state legislatures from eight states launched Fund Our Future, “a national effort to move wealth tax measures across the country,” according to the group.
Coalition members come from California, New York, Washington, Connecticut, Illinois, Maryland, Minnesota and Hawaii, all traditionally blue states where a new wealth tax may have a chance to make it through the legislature.
“The benefits are so rich from our community, from our public infrastructure and our working family workforce,” said Sen. Gustavo Rivera of New York state, Democrat, in a statement released by the group. “And because the tax system is backwards, they can avoid the taxes they have to pay.”
“We need to restructure the tax system to make it fair,” he said.