Originally published 2021-10-27.
In late October 2021, Senate Democrats put two new taxes on the table to help pay for President Joe Biden's Build Back Better agenda: a "Billionaires Income Tax" that would tax the yearly growth in the wealth of America's richest people, and a 15% minimum tax on the profits large corporations report to shareholders. Both were drawn up because a more conventional plan, raising the corporate tax rate and reversing the 2017 Trump tax cuts, had been blocked by members of Biden's own party. Only one of the two ideas eventually became law.
Why Democrats needed new revenue ideas
Biden's original social and climate package was priced at about $3.5 trillion over ten years. Democrats planned to pass it through budget reconciliation, a process that needs only a simple majority in the Senate. With the chamber split 50–50, that meant every Democratic senator had to agree.
Two of them did not. Senator Joe Manchin of West Virginia objected to the size of the bill, and Senator Kyrsten Sinema of Arizona refused to support higher income-tax or corporate-tax rates. Without Sinema, the plan to lift the corporate rate from 21% back towards 28%, and the House Ways and Means Committee's proposals under chairman Richard Neal for a 26.5% top corporate rate and a 39.6% top individual rate, could not pass. The package was cut back towards roughly $1.75 trillion, and party leaders went looking for revenue Sinema could accept.
How the Billionaires Income Tax would have worked
Senate Finance Committee chairman Ron Wyden unveiled the Billionaires Income Tax on 27 October 2021. Today, Americans generally pay tax on investment gains only when they sell an asset. The very rich can hold shares for decades, borrow against them and pass them on at death, so much of their growing fortune is never taxed as income.
Wyden's plan would have changed that for a tiny group: people with more than $1 billion in assets or more than $100 million in income for three years in a row. His office estimated about 700 taxpayers would qualify. For them:
- Publicly traded assets such as shares would be "marked to market" each year, with gains taxed and losses deductible whether or not anything was sold.
- Hard-to-value assets such as real estate or private businesses would still be taxed only on sale, but with an extra interest-style charge to remove the benefit of waiting.
- The first year's tax on years of built-up gains could be spread over five years.
Supporters such as the Institute on Taxation and Economic Policy argued it would finally tax the main way billionaires get richer. Critics said it would be hard to administer, would invite a constitutional challenge over whether unrealised gains count as income, and singled out a handful of people. Elon Musk mocked the idea on Twitter.
The 15% corporate minimum tax
The second proposal, released on 26 October 2021, was aimed at profitable companies that pay little or no federal income tax because of deductions and credits. It set a 15% minimum tax on the "book income" that very large corporations report in their financial statements, applying to firms with more than $1 billion in profits over three consecutive years. Sinema signalled she could support it, which is why it survived when a rate rise did not.
Unlike the billionaire tax, which never reached a vote, this idea had a future. It was folded into the Inflation Reduction Act, which Biden signed on 16 August 2022. That law applies the 15% minimum to companies with more than $1 billion in average annual financial-statement income and was estimated to raise around $222 billion over ten years, alongside a new 1% excise tax on share buybacks.
Who pushed back, and why
Opposition came from inside and outside the party. Manchin said publicly that he disliked targeting particular groups of wealthy people, and the billionaire tax was left out of the framework the White House published on 28 October 2021. In its place, Democrats proposed a surcharge on personal income above $10 million, with a further rise above $25 million.
Former Treasury Secretary Steven Mnuchin, who served under Donald Trump rather than in Congress, told Bloomberg Television he favoured simplifying the tax system but objected to taxing one small group in a specific way. "I worry about the unintended consequences," he said, adding that many fortunes would probably move into foundations and charities, reducing the revenue collected.
Progressive Democrats had the opposite complaint: Biden had promised that nobody earning under $400,000 a year would pay more, and they felt the shrinking package let the wealthy off lightly.
What happened to Build Back Better
The House passed a roughly $2 trillion version of Build Back Better by 220 votes to 213 on 19 November 2021. In the Senate it stalled. On 19 December Manchin announced he could not support it, citing inflation, the national debt and the Omicron wave.
Months of talks later produced a much smaller bill, the Inflation Reduction Act, which focused on climate, energy, prescription-drug prices and deficit reduction. It passed the Senate on 7 August 2022 with Vice President Kamala Harris breaking a 50–50 tie. The corporate minimum tax made it in; the billionaire tax did not.
Why the idea keeps coming back
Taxing unrealised gains of the ultra-rich did not disappear with Wyden's bill. In March 2022 the Biden administration proposed a "Billionaire Minimum Income Tax", a 20% minimum rate on households worth more than $100 million that would count unrealised gains, and it reappeared in later budgets without passing.
The underlying debate is easy to follow once the jargon is removed. Wage earners pay tax every pay cheque; the richest Americans hold most of their wealth in assets whose rising value is not taxed until sold, and often not even then. Supporters of a wealth or mark-to-market tax say that gap is unfair. Opponents say valuing private assets every year is impractical and that taxing paper gains could force sales or face legal challenge. For readers trying to make sense of headlines, the key point is that "billionaire tax" proposals are usually about when gains are taxed, not about a new tax on wages.
Sources: ITEP: Wyden's Billionaires Income Tax; ABC News/GMA: how the proposed billionaires income tax would work; Wikipedia: Build Back Better Act; Wikipedia: Inflation Reduction Act; Reuters, 26 October 2021.
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