SUBSCRIBE TO OUR FREE NEWSLETTER
Daily news & progressive opinion—funded by the people, not the corporations—delivered straight to your inbox.
5
#000000
#FFFFFF
5
#000000
#FFFFFF
billionaires income tax
Pass Wyden’s Billionaire Income Tax Bill to Close Unfair Loopholes
The bill would end two of the ultra rich’s favorite tax-avoidance strategies: “Buy-Borrow-Die” and “Buy-Hold for Decades-Sell.”
Jan 06, 2025
America’s ultra-rich today love to play tax-avoidance games. One of their favorites goes by the tag “buy-borrow-die,” a neat set of tricks that lets billionaire households avoid any taxes on the gains they make from their investments.
The simple rules of the buy-borrow-die game: buy an asset—with your millions or billions—and watch it grow. If you have a hankering to pocket some of that gain, don’t sell the asset. Any sale would trigger a capital gains tax. Just borrow against that asset instead, a simple move that lets you avoid capital gains levies so long as you live.
And what happens when you die? Nothing! Your asset’s untaxed gains vanish for income tax purposes under a tax code provision known as “stepped-up basis.”
Thanks to this buy-hold for decades-sell, the effective tax rate on the multi-billion dollar gains of America’s Bezoses, Gateses, and Buffetts, even when they do sell assets before they die, approaches zero.
This buy-borrow-die, progressive lawmakers like U.S. Sen. Ron Wyden from Oregon believe, amounts to a game plan for creating dynastic fortunes. Wyden has proposed an antidote, dubbed the “Billionaires Income Tax,” which would require billionaires to pay tax annually on the gains they make from tradable assets like the corporate shares that list on stock exchanges.
Gains from non-tradable assets would go untaxed, under Wyden’s proposal, but only until the assets get sold, at which point the tax rate would be increased to account for the tax-free compounding of annual gains. And those who inherit millions and billions from billionaires would no longer, under Wyden’s bill, be able to benefit from our current tax code’s magical stepped-up basis.
Closing the buy-borrow-die loophole would, all by itself, be reason enough for passing Wyden’s Billionaires Income Tax bill. But buy-borrow-die may only be the second leakiest loophole Wyden’s proposal would close. His Billionaires Income Tax proposal would also shut down a far less well-known loophole I like to call “Buy-Hold for Decades-Sell.”
How does this loophole work? Consider two rich taxpayers, Jack and Jill. Each invests $10 million in a stock they hope will grow at a 10% annual long-term rate, a good but not great return for a rich investor. Investors in Berkshire Hathaway, for example, have seen average annual returns of about 20%.
Our Jack goes on to hold his stock for 30 years and realizes exactly the 10% annual return he hoped to achieve.
Jill opts for a more aggressive investment strategy. After holding her stock for just over one-year, long enough to qualify her profits for the preferential tax rate available to long-term capital gains, Jill then sells at an 11% gain, pays tax on the gain, and invests the remaining proceeds in a stock she believes has more potential going forward. She successfully repeats this strategy each year for 30 years.
You might guess that Jill’s eventual nest egg at the end of 30 years, after paying federal income tax at the current long-term gains rate of 23.8%, would be larger than Jack’s. But, despite Jill’s superior investment acumen, Jack’s $135 million nest egg turns out to be 20% larger than Jill’s $112 million nest egg.
How could that be? Jack, to be sure, does pay the same 23.8% tax on his capital gain as Jill. But Jack’s money has had the benefit of 30 years of compounding before Jack has to pay that tax. That benefit far outweighs Jack’s lower annual investment return.
Jack’s whopping tax benefit from holding an appreciating asset for several decades should give us pause. After all, we want investors to seek the highest yielding investments, not the ones that get the best tax treatment. We don’t want developers of promising new technologies, for example, struggling to raise capital because our tax law confers higher returns on investors who just keep on holding old, under-performing investments.
In our example, Jill’s annual tax of 23.8% on her gains reduces Jill’s 11% pre-tax rate of return to an after-tax return of 8.38%. But Jack, because he gets to defer the tax on his 10% annual gains for 30 years, sees the after-tax return on his investment reduced by only 0.93 percentage points, to 9.07%.
As a result, Jack, a poorer investor than Jill, has millions more wealth on hand at the end of 30 years.
What tax rate would Jack have to pay annually on the growth in his stock value to place him in the same position at the end of 30 years as a one-time tax of 23.8% upon the sale of that stock? He’d only have to pay tax at a 9.3% annual rate. That 9.3% would actually run lower than the 10% income tax rate that our federal tax code currently expects Americans with incomes barely above the poverty level to pay.
In some extreme cases today, our super rich can enjoy an effective annual tax rate on their investments far lower than Jack’s.
Consider a lucky Berkshire Hathaway investor who bought 100 shares back in 1979 at $260 per share, a $26,000 investment. That investor’s shares would be worth about $70 million today. The annual pre-tax return on those shares would be 19.19%. If the investor sold the shares and paid tax at 23.8% on the long-term gain, the investor would be left with about $53.35 million.
The investor’s annual rate of return after-tax would be 18.47%, a trifling 0.72 percentage point reduction from this investor’s pre-tax rate of return. The effective annual rate of tax on the growth in the investor’s stock value would be 3.75%, less than one-sixth the 23.8% one-time rate on the investor’s compounded gains.
That about sums up perfectly the magic of buy-hold for decades-sell, the loophole that causes the effective annual tax rate on the growth in the value of investments to decline as the rate of return and length of holding period increase. Thanks to this buy-hold for decades-sell, the effective tax rate on the multi-billion dollar gains of America’s Bezoses, Gateses, and Buffetts, even when they do sell assets before they die, approaches zero.
We don’t need to just close the buy-borrow-die loophole. We desperately need to shut the buy-hold for decades-sell loophole just as firmly.
Keep ReadingShow Less
'I'm Kim Kardashian, Of Course...' It's Time for a Billionaires Income Tax
"Imagine if, instead of decking out Kim Kardashian's office, billions went to homeless services providers trying to keep unhoused people alive in freezing winter storms," said one Capitol Hill staffer.
Jan 19, 2024
In recent days, TikTok users representing a wide range of professions and lifestyles have taken part in the viral "of course" trend, sharing relatable habits and quirks in humorous videos—but socialite Kim Kardashian's entry left U.S. Sen. Ron Wyden with just one takeaway on Friday.
"It's time for my billionaires income tax," said the Oregon Democrat, who chairs the Senate Finance Committee, after seeing the media personality's video.
In the one-minute TikTok video, Kardashian gives viewers a tour of her office, where she has her "beauty campaigns on loop on a big TV wall," 3D models of her private jet and her brain on her desk, and a tanning bed, among other items.
"Can we please just tax the rich already?" asked consumer advocacy watchdog Public Citizen, echoing Wyden.
Wyden didn't comment on Kardashian's video beyond his post on X, formerly known as Twitter, but he has long advocated for a Billionaires Income Tax, which he first proposed in 2021.
The law would require people whose net worth is over $1 billion—roughly 700 people in the U.S., including Kardashian—to pay taxes on the gains in their wealth each year, "just like workers pay taxes on their paychecks each year," as Americans for Tax Fairness (ATF) explained.
The wealth of the richest people in the U.S. skyrocketed by 57%, or $1.7 trillion, in the first two years of the coronavirus pandemic. White House economists found in 2022 that the wealthiest 400 American households paid an average effective tax rate of just over 8% between 2010 and 2018, when their stock gains were counted as income.
"The average individual income tax rate for all taxpayers was 13.3% in 2019," said ATF. "That means billionaires on average are paying lower tax rates than middle-class workers like teachers, nurses, and firefighters."
The tax would raise $557 billion over 10 years, according to the Joint Committee on Taxation, and the revenue could be used to make childcare, healthcare, and education more affordable for millions of working families.
U.S. President Joe Biden supports the proposal, as do nearly two-thirds of U.S. voters.
Madison Moskowitz, an economic adviser to Wyden, noted that Kardashian posted her video as hundreds of thousands of unhoused Americans are facing heightened safety risks amid freezing-cold temperatures across much of the country.
"Imagine if, instead of decking out Kim Kardashian's office," said Moskowitz, "billions [of dollars] went to homeless services providers trying to keep unhoused people alive in freezing winter storms."
Keep ReadingShow Less
Wyden's Billionaires Income Tax Targets Ultrawealthy 'Schemes'
"Working people don't get to play by the same rules as billionaires. They don't get to call up an army of high-priced lawyers and accountants every time they don't feel like paying their taxes."
Nov 30, 2023
In a bid to "restore fairness to the tax code and level the playing field for working families," U.S. Sen. Ron Wyden on Thursday led 15 Senate colleagues in introducing the Billionaires Income Tax Act, legislation the Oregon Democrat said would "ensure billionaires start paying their fair share in taxes."
"Right now, the average billionaire can wriggle their way into a measly 8% tax rate while a nurse or firefighter making $45,000 is paying a 22% tax on their wages," Wyden, who chairs the Senate Finance Committee, said on the upper chamber floor.
"Tax laws simply don't apply to billionaires in the same way they do to everybody else," the senator continued. "They're optional, while everybody else's tax rules are mandatory."
"Working people don't get to play by the same rules as billionaires," he added. "They don't get to call up an army of high-priced lawyers and accountants every time they don't feel like paying their taxes."
That unjust disparity, Wyden said, boils down to three words: "Buy, borrow, die."
"Here's how it works: A billionaire buys a business, and then borrows against its growing, untaxed value to fund their extravagant lifestyle," he explained. "Everything from superyachts, to luxurious vacations, expensive art deals, you name it. It goes up and up in value all while not paying a dime in tax."
"And when they die," the lawmaker added, "their assets are passed to their kids—often entirely tax-free—and the cycle continues."
Wyden said his bill "will put a stop to" buy, borrow, die, "one of the most common schemes billionaires use to avoid paying their fair share."
The measure would raise an estimated $560 billion over 10 years from less than 1,000 of the wealthiest U.S. households.
Sen. Sheldon Whitehouse (D-R.I.), one of the bill's co-sponsors, said in a statement that "teachers and firefighters shouldn't be paying higher tax rates than the ultrawealthy. It's that simple."
Co-sponsor Sen. Elizabeth Warren (D-Mass.) asserted that "for too long, billionaires have rigged the rules to cut their taxes to the bone, all while working families struggle to make ends meet."
"We should be investing in American families, not letting billionaires off the hook—and the Billionaires Income Tax takes an important step to make our tax system fairer," she added.
The Billionaires Income Tax Act is supported by more than 100 organizations.
Earlier this year, U.S. President Joe Biden unveiled a plan to raise taxes on wealthy individuals and corporations to 25%.
"A billionaire minimum tax of just 25% would raise $440 billion over the next 10 years," the president said on social media on Thursday. "Imagine what we could do if we just made billionaires pay their taxes like everyone else."
Wyden's bill was introduced on the same day that the advocacy group Americans for Tax Fairness—which supports the legislation—reported that "the collective fortune of America's 741 billionaires has grown to $5.2 trillion at the end of November 2023, the highest amount ever recorded."
Also on Thursday, UBS published a report revealing that in the 12-month period between April 2022 and April 2023, newly created billionaires around the world acquired more wealth through inheritance than entrepreneurship for the first time since the Swiss bank began studying trends of the ultrawealthy in 2015.
Keep ReadingShow Less
Most Popular