The great pamphleteer of the American Revolution, Thomas Paine, had much more on his mind than independence from the British.
Paine spent his life, Jeremy Bearer-Friend and Vanessa Williamson write in a new paper, advocating for a democratic “commonwealth” that shared the wealth. He wanted to free people “from domination both political and economic.”
In particular, Paine believed that a wealth tax on grand private fortunes could prevent the emergence of an anti-democratic elite. This tax season, over two centuries later, we may finally have a president who’s taking Paine to heart.
In its new budget proposal, the Biden administration is calling for a new “Billionaire Minimum Income Tax.” The White House isn’t calling this proposal a “wealth tax,” but we should.
Under Biden’s plan, Americans worth over $100 million would be expected to pay an annual tax of at least 20 percent on their total income — including any increases in the value of their stocks, bonds, and other liquid assets.
These liquid assets make up the bulk of every billionaire fortune, but increases in their value go totally untaxed until their wealthy owners decide to sell them off. That gives “ultra-high-net-worth households,” the White House points out, the ability to have their gains “go untaxed for decades or generations.”
Let’s take the example of a CEO who pockets $20 million a year in salary. He might pay a 20 percent tax on that $20 million.
But if this executive also holds stocks worth $10 billion and those stocks gain 10 percent in value — an extra $1 billion — then the vast majority of our CEO’s real income would go completely untaxed.
Under Biden’s plan, that CEO would have to pay taxes on his CEO pay and all his stock gains. That would hike his federal tax tab from $4 million to $204 million.
America’s 700 or so billionaires, the Biden administration notes, saw “their wealth increase by $1 trillion” last year. Yet current law has billionaires paying “just 8 percent of their total realized and unrealized income in taxes.”
That’s right: Billionaires pay at a lower overall rate than average Americans.
“Under current law, when an American worker earns a dollar of wages, that dollar is taxed as they earn it,” the White House explains. “But when a billionaire earns income because their investments increase in value, that gain is too often never taxed at all.”
Firefighters and teachers, adds the White House, “can pay double” the rate billionaires pay.
The Biden tax plan is actually taking much the same approach that Tom Paine took with a wealth tax proposal he first put forward in 1792, tax historians Bearer-Friend and Williamson argue.
Under Paine’s plan, the pair calculate, today’s billionaires would pay a tax of about 3.5 percent of their personal fortunes during normal market years. That figure is remarkably close to the tax rates that appear in wealth tax proposals that Senators Elizabeth Warren and Bernie Sanders have advanced.
Biden’s plan doesn’t take that big a bite. But it does represent a significant step toward taxing the wealth of America’s wealthiest, says Berkeley economist Gabriel Zucman.
Mega-billionaires Jeff Bezos, Warren Buffett, and Elon Musk, Zucman reminds us, together paid just $1.5 billion in federal income taxes over the five-year period that ended in 2018. Under the Biden proposal, this trio would pay at least 100 times more over the next decade or so.
Paine believed that extreme wealth undermines “the ability of citizens to choose their leaders,” Bearer-Friend and Vanessa Williamson argue, a condition that many will easily recognize today. Freedom, in Paine’s view, “meant both lifting the poor from penury and dependence” and eliminating the “vicious influence” of fiercely concentrated wealth.
Tom Paine had it right. And if Congress takes up Biden’s new tax plan, we can too.