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The Retired Investor: The Billionaire Tax That Wasn't
By Bill Schmick, iBerkshires Staff
03:58PM / Thursday, October 28, 2021

This week, the Democrats unveiled a new plan to finance President Biden's "Build Back Better" legislation. That proposal, along with a 15 percent corporate minimum tax, has politicians scrambling to line up for or against the idea. Does it have a chance to pass?
Credit for the idea goes to the Senate's top tax expert, Finance Chair Ron Wyden, an Oregon Democrat. His plan is to target only people with $1 billion in assets, or who are earning more than $100 million over three consecutive years. This group would be required to pay capital gains taxes each year on the appreciation in the value of their assets. It won't matter whether they sell or hold those assets.
The plan would impose a one-time tax on all the gains accumulated before the tax was created. That could mean a huge tax bill for some entrepreneurs that still hold a sizable portion of their company in stocks, bonds, etc. These founders would have five years to pay off their one-time tax. Each year after that capital gains taxes would be levied on the annual appreciation of assets that are easily valued such as publicly traded assets (bonds and stocks). Ownership of private companies and real estate holdings might not be assessed until after they are sold with different tax rules, depending on the nature of the assets.
The beauty of this plan for politicians on both sides of the aisle is that if passed, the billionaire tax would only impact around 700 people. As such, there is not a lot of voter risk involved in this idea. But the upside would be that it would generate several hundred billion dollars in revenues. Capital losses on assets would be allowed, which could also be carried forward (and in some cases backwards).
For those who might oppose this plan, the idea of defending a bunch of billionaires is dicey at best. Most voters (and most of the media) believe this wealthy handful of people are not paying their "fair share" of taxes in the first place. And as for the corporate tax rate, most large corporations are not paying the official tax rate any way. After all the credits and other tax loopholes that have been accumulated over the decades, the effective tax rate for most corporations is well below. The tax rate for some companies is zero or below.
As with most new or proposed legislation nowadays, even if the tax is passed, it would likely be challenged in court. The American Constitution does not allow so-called direct taxes. The idea is that you can't levy a tax on someone that can't be imposed on others. However, thanks to the 16th Amendment, there is an exception when it comes to income taxes, which allows Congress to tax earnings. A court case would focus on whether a billionaires' tax would count as an income tax.
The new plan is a result of the present stumbling block between Democrats of different persuasions. Sen. Joe Manchin III, a Democrat from West Virginia, and Sen. Kyrsten Sinema, a Democrat from Arizona, have stalled any agreements, both from the size of the spending, as well the best way to pay for it. Will this tax, as well as the minimum corporate tax, ever see the light of day?
In the case of the corporate minimum tax there may be enough support for it within the Senate. As for a billionaire's tax, probably not.  Aside from the question of constitutionality, the current Supreme Court would also be an obstacle to interpretating the legality of the tax. The billionaire victims of the proposal, while a small group, carry enormous political weight among politicians. They would be sure to express their opposition (privately) to those that matter.
And finally, most Americans would probably see this kind of wealth tax as an unmistakable step toward socialism, if not Marxist. I don't think the average voter is ready to take that step quite yet.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
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