Biden's Billionaire Tax: Here's What It Is

Ever since taking office, President Biden has been on a mission to bring greater equity to America's tax code. As he has said numerous times, a system that taxes teachers and firefighters at a higher proportion of their wealth than multimillionaires is a system badly in need of reform.

Last month, Biden gave another hoorah to this mission as he laid out a number of wealth taxes in his 2024 fiscal budget. One of these, dubbed the "billionaire tax," would levy a minimum 25% tax on Americans whose net worth exceeds $100 million.

What exactly is this billionaire tax and how would it work? Let's take a closer look.

What is Biden's billionaire tax?

The billionaire tax would ensure that the richest 0.01% of Americans -- those whose net worth exceeds $100 million -- pay at least a 25% federal income tax on all personal income, including unrealized capital gains.

The Biden administration estimates that America's multimillionaires pay an average tax rate of 8.2%. Wealthy Americans can maintain such a low rate because they often hold most of their wealth in assets, like stocks and real estate, which are not taxed until sold. They can also borrow against these assets -- often with ridiculously low interest rates -- without paying taxes.

Biden wants to treat these assets as if they were personal income and tax all unrealized gains at a minimum of 25%.

That's huge. Never in the history of the American tax code has the IRS levied taxes on unrealized gains. But, by doing so, Biden believes wealthy Americans will pay taxes at an equal proportion to their wealth.

How would Biden's billionaire tax work?

Basically, multimillionaires would pay the billionaire tax through an annual "top-up" payment. These top-up payments would equal the difference between what they've already paid in taxes and what is 25% of their personal income for that year.

Let's look at Jeff Bezos as an example.

According to a notable study by ProPublica, Bezos paid $0 in federal taxes in 2007. In the same year, Bezos' net worth gained $3.8 billion due to the nearly 200% increase in his shares of Amazon. If Biden's billionaire tax had been policy back then, Bezos would owe the complete 25% on that $3.8 billion unrealized gain -- or $950 million in federal taxes.

How Bezos would pay that $950 million is where things get complicated.

He could pay it like most Americans pay their tax bills: in cash. Of course, this is a tax on an unrealized gain, meaning Bezos doesn't exactly have $3.8 billion in cash sitting in his checking account. Instead of paying cash, then, the Biden administration would let Bezos -- and other multimillionaires -- defer the payment until a later day. They would pay interest, of course. But they wouldn't have to cough up a payment immediately.

Will Biden's billionaire tax pass?

No, probably not.

The Republican-led House, which holds the keys to Biden's budget proposal, has no interest in levying higher taxes on America's wealthy. To them, the answer to the federal deficit isn't higher taxes but decreased federal spending. Their budget, which is due in the middle of April but will probably arrive in May, will most likely exclude any mention of a 25% minimum tax on multimillionaires.

Even so, many state governments are coming up with their own versions of Biden's billionaire tax. For instance, Massachusetts now has a "millionaire tax," which levies an extra 4% tax on high-income earners whose taxable income exceeds $1 million in a year. Other states are also set to introduce their own millionaire taxes, including California, Connecticut, Hawaii, Oregon, and New York.