A Taxing Time for America

Joe Biden has made his latest bid to have his name sit beside that of Franklin Roosevelt in America’s history books, assuming history remains in the curriculum of our universities. He is proposing to tax and tax, spend and spend. Squeals of delight can be heard from lobbyists, lawyers, and accountants preparing to do battle with the Internal Revenue Service on behalf of clients too well-off to demand service on a pro bono basis.

Spend And Tax

The President is proposing to spend $6 trillion in the 2023 fiscal year that begins on October 1. That is 36 per cent more than was spent in 2019, the last pre-pandemic year, and will add $1.4 trillion to the national debt, already well above $30.3 trillion, twice the level a decade ago, and 130 per cent of GDP, up from about 99 per cent a decade ago.

The administration’s ten-year budget plan calls for a highest-ever $2.5 trillion in new taxes, with about $361 billion generated by a “Billionaire Minimum Income Tax”, which some call America’s first wealth tax. Others say it is merely a long-overdue reform of the tax code. The difference is important, as some lawyers contend that the government has the constitutional right to tax income but not wealth.

They Never Realized It Would Come To This

Some 7,800 households with net worth of $100 million or more would pay a minimum tax of 20 per cent on their incomes, newly defined to include unrealized gains in the value of their liquid assets, such as stocks and bonds. Unrealized gains in the value of illiquid assets such as art and property will also be taxed, using a complex system for valuing and taxing those gains. To borrow from Tevye, the poor milkman in “Fiddler on the Roof”, the problems posed would “cross a rabbi’s eyes”.

Conceptually, there can be little objection to taxing unrealized capital gains, as the current system provides the very wealthy with a sort of tax loophole. They typically borrow against those gains and use the cash as they would any other income that is subject to income tax. Many often pass the appreciated assets on to heirs, who do not have to pay tax on the gains.

Politically, a tax that would fall primarily on billionaires has an advantage for the President: it just might satisfy the financial blood-lust of his restive progressive wing, hot-under-the-collar about his new effort to expand production of fossil fuels.

It Ain’t Easy Being A Billionaire These Days

Elon Musk, who says his tax bill this year will come to $11 billion, would owe an additional $50 billion, Jeff Bezos an additional $35 billion if the Biden budget is adopted. Warren Buffett, who has been clamoring for an increase in his taxes so that his tax rate will exceed his secretary’s, would be hit for an additional $26 billion. The tax would have the effect of transferring resources from the men who have given us Tesla, Amazon and Berkshire Hathaway, to politicians to spend in ways they deem useful, at no risk to their own financial positions.

Or Anyone Else

Traditional taxes would also rise if the President prevails with congress: several Democrats are not eager to run for re-election on this part of his plan. The corporate rate is to go to 28 per cent from 21 per cent, and the top individual rate from 37 per cent to 39.6 per cent. The tax rate on capital gains would jump to 43.4 per cent from 23.8 per cent.

In the policy debate touched off by the President’s tax proposal, which is a long way from becoming law, the ordinary difficulty of determining what is “fair” is compounded by the times in which we live. Inflation is rampant, propelling some taxpayers into higher tax brackets even though their real incomes have fallen. They might reasonably claim they are due a tax cut. Covid “relief funds” have been lavished on the not-needy; the Treasury might reasonably claw back some cash, along with money designated for covid relief that ended up financing a luxury hotel in Florida ($140 million), golf courses in Colorado ($6.6 million), and a ski resort in Iowa ($2 million).

America At A Crossroads

Most important is the unfortunate coincidence of three events:

  • Xi Jinping’s China is challenging America’s role in world affairs;
  • Vladimir Putin’s brutalizing of Ukraine will oblige America to provide massive on-going amounts of U.S. aid; and
  • President Biden has submitted a budget calling for real (inflation-adjusted) reductions in military spending.

America must decide whether to end the progressive shrinkage of its military power. It must decide whether its national security demands catching up with China in important aspects of militarily crucial research and development. It must decide how much to spend on long-term support of the Ukrainian military and civilian population. It must decide whether the cost of refurbishing its military requires a review of plans to expand the entitlement state, or how to pay for both guns and butter.

No small order for a fractured political class, about to begin a rancorous off-year congressional election on which Donald Trump has $100 million to spend to make it about him rather than the issues facing the nation.