Below is my column in the Hill on President Joe Biden’s new tax on “unrealized gains.” After the President rolled out the new tax, his economic adviser Jared Bernstein went on Fox News and had a moment of uncontrollable honesty. He blurted out to Bret Baier that “it is very much a tax on wealth.” For the White House, it was a cringe-worthy moment. After going through considerable effort to cover this tax in sheep’s clothing, Bernstein ran out of the White House screaming “Wolf, Wolf.” Indeed, the new tax is being framed as a “pre-payment” to avoid the obvious: that it is an unconstitutional wealth tax. Bernstein’s statement is now likely to feature prominently in court filings challenging this tax if it ever secures congressional approval.
Here is the column:
Announcing his new taxation plan to raise an additional $1 trillion, President Biden repeated his oft-stated assurance that “I am a capitalist.” The concern raised by his new plan, however, is not one of capitalism but constitutionalism. While not addressed in the president’s remarks, the Biden White House is planning to introduce a new type of income tax that would fundamentally change the taxation powers in the United States. Taxing the “unrealized gains” of billionaires is likely to be popular, but it may also be unconstitutional.
It is difficult for average Americans to fret over the tax burdens of Jeff Bezos or the roughly 700 other billionaires who would be subject to this change — but this would be a new tax which, if successful against billionaires, is unlikely to stop with them.
Politicians have long turned to the “Eat the rich!” battle cry when things are not working out politically or economically. When struggling in the 2020 Democratic presidential primaries, Sen. Elizabeth Warren (D-Mass.) pledged a wealth tax, declaring that she was coming after “the diamonds, the yachts, and the Rembrandts too.” Then-New York City Mayor Bill DeBlasio, another Democratic contender at the time, was barely registering in the polls when he promised that “we will tax the hell out of the wealthy.”
Now, facing record lows in polls (including only 33 percent approving his handling of the economy), President Biden is picking up the same class-warfare cudgel. Indeed, in defense of this new tax, Sen. Bernie Sanders recently compared American billionaires to Russian oligarchs.
There is no question that taxing billionaires always makes for good politics, but it can also make for bad cases when an income tax is not based on actual income. Like today’s popular call to seize the yachts of Russian oligarchs, the gratification of taking from the “super rich” can be lost if you have to give it back.
The Biden tax would raise an estimated $360 billion in new revenue over the next decade. It would target households worth more than $100 million that do not already pay 20 percent tax to increase the tax burden to that level on their “full income.” However, what the Biden administration is calling “full income” would be subject to the additional tax.
Income tax focuses on actual income or gains acquired by citizens in any given year. That includes “capital gains” when you sell an asset for more than its original purchase price. It is “realized” when you sell it.
Democrats now are seeking “unrealized gains,” even though an asset has not been sold and could go down in value. It is a more sophisticated version of Warren’s wealth tax, but it is arguably just as unconstitutional.
The Constitution originally imposed a narrow limit on Congress’ taxing authority. Article I, Sections 8 and 9, barred any direct tax unless it’s “apportioned among the several states” in proportion to population. In other words, it must be spread evenly among every person in every state.
In 1895, Congress sought to impose an income tax, but was stopped by the Supreme Court in Pollock v. Farmers’ Loan & Trust (1895). The court barred any such tax “upon property holders in respect of their estates, whether real or personal, or of the income yielded by such estates, and the payment of which cannot be avoided.”
That case led to the ratification of the 16th Amendment, which allows Congress to levy “taxes on incomes” without apportionment. Yet it expressly states that “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
Biden, however, is now asserting the right to tax not only income but assets. Rather than wait for a taxpayer to sell an asset and tax those gains, he wants to start collecting taxes now.
The Biden White House insists this is merely “a prepayment of tax obligations these households will owe when they later realize their gains. … This approach means that the very wealthiest Americans pay taxes as they go, just like everyone else, and eliminates the inefficient sheltering of income for decades or generations.” Framing the tax of assets as a pre-payment still leaves it a tax on current wealth rather than income.
There is also the daunting logistical task of valuation and why some assets may be counted over other assets.
The same is true about a home. A family house likely will grow in value, and that value can be captured as a property tax by states. Yet the federal government cannot also take that value as a “prepayment of tax obligations” on an asset that might go down in value or not be sold for decades.
The targeting of billionaires is a brilliant way to get the public to accept a new type of tax. Once allowed, though, it can then be used on any asset and against any tax bracket to tax “unrealized gains.” If history shows anything, it is that the government tends to operate like a gas in a closed space: Expand the space, and the gas will fill it evenly.
Taxing 700 fat-cats is not going to erase the towering debt of the government. That would require exploiting new, untapped sources of income. Unrealized gains would open up a massive amount of potential taxable assets. Moving from 700 billionaires to 22 million millionaires would be based on the rationale of rich people not paying their fair share. After all, many would be holding the very same stocks or shares or assets. With almost 60 percent of citizens paying no income tax, the need for such revenue is only likely to increase.
Democrats have argued for years for a wealth tax. The Biden proposal is as clever as it is cynical. The White House is betting that it picked the least popular group to target in order to get average citizens to accept a new type of tax; once accepted for billionaires, the question then becomes a matter of discretion, as Congress taps other brackets for revenue.
During the 2020 Democratic primary debate, Warren was applauded when she rubbed her hands together and gleefully explained how she would take some of the wealth of fellow candidate John Delaney. Delaney was worth $65 million, so he would arguably miss Biden’s cutoff. But Warren’s theatrics show how this is unlikely to stop with “The 700.” She treated Delaney’s wealth like it belonged to her and others, an irresistible windfall of public funds.
During the French Revolution’s “Reign of Terror,” Pierre Gaspard Chaumette, president of the Paris Commune, rallied the mob by quoting the French philosopher Rousseau that “when the people shall have nothing more to eat, they will eat the rich.” As shown in 1793, lawless measures rarely stop with those first targeted. No one is suggesting millionaires will be carted off in tumbrels to the guillotine. However, taxation can prove an insatiable appetite — when the feast on the rich begins, it is unlikely to end with a first course of billionaires.
Jonathan Turley is the Shapiro Professor of Public Interest Law at George Washington University. Follow him on Twitter @JonathanTurley.
Somehow I think this is nothing but smoke and mirrors and nothing will happen. Nothing red meat for left wing progressive dims.
There once was a senator Joe Biden who twice voted to tax our social security. Gee I wonder what he’s doing these days?
As unconstitutional as it is unworkable.
Imagine a newly hired and minted barbarian horde of omniscient and omnipotent IRS “appraisers’ dedicating their life and yours to the noble quest of ensuring that everyone is “pre-paying” their “fair” share of taxes on “gains” that haven’t even been realized yet. What happens if the value goes down? What is the impact on the cash flow for individuals especially as this tax scheme rolls out to ordinary Americans? The what-ifs are endless It warms the heart to think of the thousands of pages of legally enforceable tax code, a vastly expanded and empowered IRS, lawyers, appraisers, tax courts, the appeals, the accountants all “gainfully” employed to administer this extravaganza of government profligacy and paean to bureaucratic inefficiency.
And where is the value created in this hare-brained process? Money is simply transferred from a productive private sector to a legendarily unproductive government sector as the Dems continue their never-ending drive towards Socialism. A study of history will tell you how that ends with 100% accuracy.
They say that at the beating heart of every liberal is the need to control everyone and everything.
The corollary to that is the need to tax everyone and everything. Unless, of course, your name happens to be Hunter Biden.
I have two thoughts here that I think are important. One, the wealthy are really small to medium sized nations that employ others, create jobs and opportunity. Penalizing them unconstitutionally hurts everyone, remember we are just bailing out of the government because of their inane policy on most issues and their—just throw money at it—attitude. Number two, and the most importantly, have you seen government make a law or policy then swear it is only be temporary or will only apply to one segment of society? I haven’t, they, the government always eventually expands the policy to rest of us. What happens to the wealthy will eventually find its way to us.
What we should do is eliminate employment taxes on everyone. Gasp I hear your mutter. But think about this: Why should we be taxed on the time we spend in our lives making a living? Why? It is criminal. It is a protection scheme by the government. Taxes should be handled at the time we create economic events like a purchase of products. That is not enough, you say next. No, it is plenty because along with that type of taxation we need to limit government to a predetermined size. For instance a percentage of GDP.
We never ask the question. How much do we want to spend for a government, a military, and ambassadors to other nations? We need to start asking and then come up with a number.
HOW THE —- DOES THE “GOVERNMENT” KNOW WHO IS RICH?
“RICH” IS ABSOLUTELY NONE OF THE GOVERNMENT’S BUSINESS!
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4th Amendment
The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.
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What is the judicial branch doing, other than overseeing the imposition of the principles of communism?
Justices swore an oath to “support” the Constitution.
The Constitution provides rights and freedoms to People, and it provides limits and restrictions on government.
According to the U.S. Constitution, a citizen’s wealth is private and not the business of the public or the government.
The taxes of the Founders were excise taxes.
The Founders never intended the use the tax code as a cudgel, to compel social or consumer behavior, to favor industries and enterprises, or otherwise participate in business or industry operations.
“Too big to fail” was absolutely unconstitutional.
The Founders never intended income tax or an IRS and governmental scrutiny of personal enterprises or personal finances, while citizens enjoyed the full right of privacy.
Communists, by contrast, simply redistributed wealth “…from each according to his ability, to each according to his need.”
Karl Marx sent a letter of congratulation and commendation to Abraham Lincoln for his efforts in “…the reconstruction of a social world.”
Look around you, comrades, what happened in once-free America?
Let’s all line up for “free stuff” and governmentally imposed social status.
Thank Comrade General Secretary And Despot Abraham Lincoln for setting the course, by brute force, for the incremental implementation of communism in America.
Display Karl Marx’s letter to Abraham Lincoln in the Lincoln Memorial.
There is already is precedent for “prepayment” of taxes. The federal government applies payroll taxes to restricted stock units (RSU) when granted, to employees over 55 years of age. However, actual income is not realized until RSU are distributed, typically one year or later. These taxes are applied to those of all income levels.
I believe the concept of taxing assets is an excellent one, but only if it is first tested on members of Congress and all other elected officials. Let’s try it at, say, a mere 70% tax rate, and for a period of only 5 years to see how this plan actually works in practice. Whaduyasay, Pocohontas?
It’s just the latest gimmick offered by biden’s “minders” in an effort to attract voters on the basis of we vs. them – rather than on any policies or regulations or legislation that are worthwhile for the USA. Rich vs. not-so-rich; “black” vs. ALL other lawful residents; young vs. old; women vs. men; so-called “people of color” vs. people of no color; victims vs. racists; those who choose to be innoculated against the CCP virus vs. those with moral/religious reasons for refusing; progressives vs. anyone who doesn’t adhere to their opinions; etc. etc.
Clearly unconstitutional, but after Roberts saved Obamacare by calling a regulatory penalty a tax, one can have no confidence the courts will do the right thing.
Better to get rid of the step-up in value of assets at death, but that would really offend the very wealthy and is therefore a non-starter in our current corrupt regime.
Not step-up in value, but step-up in basis.
It’s ALWAYS the middle class that pays.
Here’s an old one
The power to tax is the power to destroy (Marshall, CJ)(McCulloch v. Maryland)
We can break it down to one simple question. Do you want the innovators to innovate or the government to innovate? Nations that chose the government as the innovator have soon traveled the road to serfdom. As the poverty continues to grow because of high taxes in such nations their governments always blame the innovators. Before long innovation comes to a halt because the people in government have no idea how to innovate. In Russia under Stalin the innovators were the farmers because through their hard work they could feed themselves while others were hungry. What did Stalin do? He blamed the farmers. He rounded them up into concentration camps and then replaced them with workers from the cities. The result was 6,000,000 people who starved to death. Just like Joe Biden when Stalin failed he blamed it on the rich. All of this is documented in a book by Aleksandr Solzhenitsyn known as “The Gulag Archipelago.” This is a book that Joe Biden doesn’t want you to read because it exposes the results that are brought about by control by the Socialists/Communist. Biden, Warren, Sanders, Obama, Stalin are all part of the same governmental philosophy. However there is one difference. Stalin tried true Communism and Biden, Warren, Sanders and Obama say that true communism hasn’t been tried yet. Consequently the grand experiment continues. The result to their grand experiment is coming to your table soon.
The “billionaire tax” hits those having $100M or more in unrealized gains, in other words – assets. It’s not an income tax, it’s clearly a wealth tax and likely unconstitutional. (As if Biden hasn’t tried unconstitutional mandates before. Lol.) While it may feel good, it’s a conditioning exercise to get you comfortable with such a tax and then they’ll inch it down the asset value ladder into a bracket near you. And inflation will accelerate that process. As another example of conditioning, notice how Gov. Newsom won’t lower the gas tax to relieve actual users of fuel, but instead will hand out checks for gas relief to registered vehicle owners in California. Your car could be in the garage undriven for months and you’ll get the stimmy. It’s an effort to get us all, or at least a voting majority, to be beholding to government for our support. Once they get a critical mass of takers, who among them will vote against government handouts or especially a politician who promises to keep it coming? The conditioning is underway. This prophetic parody was more than 10 years ago. It’s gotten a lot worse since.
https://iowahawk.typepad.com/iowahawk/2011/03/feed-your-family-on-10-billion-a-day.html
Good comment Craig.
I’m just trying to understand the logic. Leftist’s desire to end our dependence on oil. So we cutback domestic production and become dependent on foreign oil. Since demand hasn’t changed, we pay more for the same amount of oil, but we are importing it instead. Charging stations still require oil to produce the electricity. What has been accomplished for the environment? And Newsome wants to pay people with registered vehicles, including gas-powered vehicles, to offset the rising price of oil. That’s like me punishing my son for playing video games instead of doing homework, by taking away his video games and paying for him to stream Netflix movies. The only thing green about the Green New Deal is the wealth transfer from Americans to countries that would like nothing more than to see our entire system collapse.
“What has been accomplished . . .?”
The same thing that’s accomplished in any shell game: You get fleeced.
Sam,
Another illogical decision was to cancel construction of the Keystone XL pipeline. Transporting oil from Canada to the United States by rail or truck has been proven to be inefficient and a direct threat to the environment. If we are to continue transporting oil from Canada to the United States, then the pipeline is a net environmental positive. Canceling it appears to be more of a symbolic gesture to the Left and a direct FU to the majority of Americans.
“. . . cancel construction of the Keystone XL pipeline . . .”
In addition to kneecapping America’s energy industry (while appeasing the anti-energy zealots), that cancelation has a political corruption angle.
BNSF (a Buffett company) transports oil and gas (yes, from Canada). Buffett endorsed Clinton and Obama (and contributed to Obama’s campaign). In 2019, he contributed some $250k to elect democrat candidates.
Using the government’s police powers to destroy an economic competitor is an ages-old tactic to repay a debt.
The federal government in the FY ending September 2021 set a new record in tax revenue. However, adjusted for inflation, the federal government spent the 2nd highest ever; nearly double of the revenue. George Bernard Shaw said the quiet part out loud: A government which robs Peter to pay Paul can always depend on the support of Paul. Our federal government is effectively an untouchable criminal enterprise. As Hayek said; The history of government management of money has, except for a few short happy periods, been one of incessant fraud and deception. Of course they won’t stop at billionaires. If they succeed at implementing this new tax on unrealized gains, once it’s finally navigated it’s way through the courts, it will be ruled as a unconstitutional for unequal treatment under the law. But because it will have been thoroughly integrated into our federal budget, they’ll amend the law to apply it equally through all the tax brackets. Camels nose, meet tent. Who is going to want to maintain a portfolio of wealth they haven’t realized, only to be taxed on it. People will sell. If this doesn’t please Klaus Schwab of the WEF and The Great Reset, I don’t know what would. In his own words, by 2030, we will own nothing and like it.
https://medium.com/illumination/in-2030-youll-own-nothing-and-be-happy-about-it-abb2835bd3d1