Out of all the interesting Twitter polls that Elon Musk, CEO of Space X, has put out so far, one of the most controversial yet may have been the one posted on 6 November. Shrouded in controversy regarding his tax contributions, he asked his followers if they supported his proposition of selling 10% of his Tesla stock to make up for his tax avoidance. Over 3.5 million Twitter users voted, and with 57.9 per cent in favour, Musk has begun selling more than $5 billion of his stock.
Although these transactions were in fact pre-arranged in September, and Musk had really been planning to sell his stock all along, the poll brings to light the income inequality in the U.S., which is the highest of all the G7 nations. According to the Pew Research Centre, the wealth gap between rich and poor has more than doubled between 1989 and 2016. Over the past five decades, the top fifth of earners (at least $130,001 per year) have brought in 52% of all U.S. income. By 2018, the top 5% (incomes of at least $248,729) now take up 23% of the great American pie of income. While the pandemic might have had negative implications for middle-class families, the billionaires saw their collective wealth increase by 70 percent.
Come the Biden administration, Biden’s “Build Back Better” legislation that covers childcare, education, healthcare, and climate change over the next decade, is estimated to cost $1.5 trillion. The Democrats’ solution for the funding? A plan to tax the 700 American billionaires. The most significant feature of this plan would be that their tradable assets, such as shares, properties, or paintings, would be treated on mark-to-market basis yearly – a shift from the traditional US tax policy that only taxed during the actual sales of the assets.
For the bill to succeed, against unified Republican opposition and a narrow margin in Congress, Biden’s Democrats would need a unanimous agreement within the caucus. This may pose tricky as even within the Democrat party, there are questions regarding the feasibility and the legality behind the tax.
University of Chicago Law School professor Daniel Hemel stated that while invalidating the billionaire mark-to-market tax would not be shocking, “There are plausible arguments that the [Supreme Court] Justices could make with a straight face.” The US law remains ambiguous about certain terms, such as “unrealised gains” or “direct tax”. The courts will need to rule whether asset growth that falls under “unrealised gains” can be taxed by the government under the 16th Amendment. Further, a “direct tax” would require that it be apportioned based on state population, but this would not be possible as billionaires are not spread across evenly in every state.
In an analysis by Sarah Kessler of the New York Times, taxing unrealised gains may cause two main problems, the first being that the tax amount could never be a stable, set amount as a stock market has its ups and downs. To alleviate this problem, the federal government would have to borrow, or resort to other forms of taxes to balance the deficit. The second problem is that the unpredictable payments would pose a problem to the billionaire taxpayers who often have large fortunes liquidated onto paper, but little cash at hand. Some argue that setting this precedent will also pave the way to tax those who are less wealthy in the future. Mr. Musk supports this statement, posting on Twitter 26 October: “they run out of other people’s money and then they come for you.”
Feasibility and legality aside, what are some of the other billionaire’s responses to this proposed tax? Ray Dalio, hedge fund Bridgewater Associates founder, expressed his doubt at how the government would be spending the tax money. “I would support anything that is going to have the effect of being spent on increasing, creating equal opportunity and greater productivity. If it accomplishes those things, I would support it [the tax]. I’m not sure that it does,” he said at Saudi Arabia’s flagship investment conference. Owner of Gristedes Supermarket, John Catsimatidis said this proposal was something one would “expect Putin to do” and that it was “a little insane.” Overall, none of the top 700 seem too keen about the so-called redistribution of wealth.
Due to the controversial nature of the issue, those who were at the Capitol meeting on 27 October have claimed that the topic was taken off the table. But others such as Ron Wyden, an Oregon Democrat and chair of the Senate finance committee, seem optimistic about the future of the bill. Whatever the outcome of the debate may be, the class war has been reignited.
Image via Flickr