You have to love these tax-the-rich ‘investigations.’ The conclusions are always the same: Yes, tax the superrich, but it won’t be easy.
Photos: Jeff Bezos’ net worth is close to $200 billion.Credit…Jeenah Moon for The New York Times
28 October 2021 | Nicholas Kulish, Ephrat Livni and Emma Goldberg | New York Times
It’s the other inflation problem.
Once upon a time, protesters occupied Wall Street, or a nearby park at any rate, and wanted to hold the richest 1 percent of Americans to account.
Ten years after the occupation of Zuccotti Park, it seems like the goal has been revised upward. It’s no longer the top 1 percent or even the top 0.1 percent, but something more like an FBI 10 Most Wanted list of the one-name rich: Musk, Bezos, Zuckerberg, Gates, Buffett.
The growing ranks of the ultrarich — with spaceships replacing yachts as the ultimate status symbols — are reflected in the political discussions of taxing the wealthy. During the 2020 presidential campaign, Senator Elizabeth Warren of Massachusetts floated an “ultra-millionaire tax,” and she and Vermont Senator Bernie Sanders railed against both millionaires and billionaires.
In the negotiations over President Biden’s infrastructure bill, Senator Ron Wyden, Democrat of Oregon and chairman of the Finance Committee, proposed the idea of a tax on billionaires specifically. Thursday morning, Mr. Biden announced his framework for paying for the bill, which promised additional taxes on the income of “the wealthiest 0.02 percent of Americans.”
Mr. Wyden’s proposed tax will likely never make it into law. It is not in the White House framework for funding the infrastructure plan. Senator Joe Manchin III, Democrat of West Virginia, opposes it. And there is the added hurdle that the idea of taxing billionaires presumes the Internal Revenue Service knows, definitively, who is in that category. It does not; it collects information about income, not wealth, and could have difficulty trying to value stakes in privately held companies.
The current discussion of billionaires puts significant weight on lists of the wealthy by media outlets like Forbes and Bloomberg, which are at best incomplete and in some cases almost a parlor game. They are at their most accurate calculating the values of large stakes in publicly traded companies disclosed to the Securities and Exchange Commission.
Mr. Wyden’s proposal tried to circumvent that by including those whose income exceeded $100 million for three consecutive years. But the fundamental challenge is there is no system or requirement that Americans report their total wealth to the government. And the fact that billionaires are a powerful class of people, many of whom will push back hard against being taxed, is not immaterial either.
Still, the billionaires loom ever larger in the public imagination, and it is undeniable that their ranks have grown during the pandemic.
“The United States has always had a very high tolerance for inequality. As long as people believe the rules are fair and anyone can get there,” said Chuck Collins, director of the program on inequality at the left-leaning Institute for Policy Studies, a nonprofit, and author of “The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions.” “What’s changed is the rules don’t look fair, and not everybody can get there.”
Daily business updates The latest coverage of business, markets and the economy, sent by email each weekday.
Part of that change is how many more people are reaching stratospheric levels of wealth. By one attempt to measure — an analysis of Forbes data by Americans for Tax Fairness and the Institute for Policy Studies — there are now 745 billionaires in the United States, compared with 614 in March 2020, when the pandemic tightened its grip on the country (and just 66 in 1990). As a group, they have added $2.1 trillion to their combined net worth over the same period, which now totals $5 trillion.
“Now that we hear the words ‘millionaire’ and ‘billionaire’ a lot, we have sort of lost any sense of how much that actually is,” said Rachel Sherman, professor of sociology at the New School and author of “Uneasy Street: The Anxieties of Affluence.” “Today’s billionaires are yesterday’s millionaires, but a billion is still exponentially more than a million.”
America’s billionaires represent both first-generation technology and finance wealth and multigenerational billionaire families like the Waltons and Marses. Billionaires minted during the pandemic include Robert Langer, the co-founder of Covid-19 vaccine maker Moderna, and Timothy Springer, an early investor; reality star turned shapewear and cosmetics entrepreneur Kim Kardashian West; entertainment mogul Tyler Perry; and Whitney Wolfe Herd, whose dating app Bumble went public this year.
Sam Bankman-Fried, 29, is a prime example of a new kind of billionaire. In 2011, during the Occupy Wall Street protests, he was a student at M.I.T., considering becoming a physics professor and interested in effective altruism, a philosophy that supports applying data and evidence to doing the most good for the many.
That led him to trading on Wall Street for a few years after graduation and then into the cryptocurrency field in 2017. He started Alameda Research, a crypto trading entity in California, and in 2018 moved to Hong Kong, where he later launched FTX, a crypto derivatives exchange that offers products unavailable to U.S. traders.
Today he is worth $26.5 billion on paper. He is not a fan of the proposed billionaire tax, which would tax unrealized gains in the value of liquid assets, such as stocks, bonds and cash. For founders whose wealth is tied up in their companies, that could pose a dilemma.
“I think my biggest worry is that, especially when someone’s stock ownership far outstrips their liquid cash, taxing unrealized gains would cause massive forced selling of holdings, constant churn and cause companies to decide not to go public,” Mr. Bankman-Fried said in a statement to The New York Times. “I think this could cause hugely negative collateral damage, significantly reducing the amount of innovation and taxable base in the first place.”
Mr. Bankman-Fried’s objection is one that proponents of a billionaire tax have anticipated. They note that on a much smaller scale, many Americans are already forced to sell their most important asset, their home, to pay a tax bill.
Mr. Bankman-Fried suggested a consumption tax “would better address many of the worries around tax avoidance while allowing capital markets to function.”
Elon Musk, in a tweet, seemed to come out against the proposal. “Eventually, they run out of other people’s money and then they come for you,” he wrote. It is fairly safe to say that Mr. Musk will never run out of money. A back-of-the-envelope calculation from Forbes’s real-time net worth tracker suggests that he could spend $1 million a year for 100,000 years and still have more money than Bill Gates, with an estimated $136.2 billion.
“I’m sitting here in a chaise longue in Hilton Head Island on the beach, and I pay a far lower tax rate than people that work for a living,” said Morris Pearl, a former BlackRock executive who heads the group Patriotic Millionaires and has been a vocal proponent of the proposed tax increase. “I do pay some taxes from time to time, but it’s not a regular thing the way people that earn wages and salaries do.”
Patriotic Millionaires, which Mr. Pearl helped launch in 2010 to push for higher taxes on the wealthy, now includes more than 200 high net-worth individuals. The group has grown by a quarter during the pandemic but does not yet have any billionaires, as far as they know.
Mr. Pearl noted that many billionaires have grown accustomed to the idea of paying taxes largely at their own discretion. “People are so used to that kind of thing that it’s considered a revolutionary idea to treat billionaires like you treat people that work for a living,” Mr. Pearl said.
Abigail Disney, granddaughter of Roy Disney and a longtime critic of income inequality, said in an interview that she believes the immense displays of wealth by the country’s richest during the pandemic — particularly the ostentatiousness of last summer’s space race — helped foster a serious discussion about the tax burdens on billionaires.
Also playing a role are leaks illuminating how the richest Americans pay a relatively smaller share of their wealth in taxes than do middle-class taxpayers. From the Pandora Papers to ProPublica’s cache of tax documents to reports in The Times about President Donald J. Trump’s $750 in taxes some years, the message is the richest pay the least, Mr. Collins said.
“We know the billionaires have captured a huge amount of wealth from the society, even during a pandemic, and they pay less taxes than you and me,” Mr. Collins said. “Those two facts are leading to a backlash where taxing billionaires is a popular idea.”
Popularity does not mean the idea is politically feasible, as Mr. Manchin’s opposition demonstrated. And Mr. Wyden’s plan also prompted discussion of a constitutional challenge.
“This would be the first real attempt to tax unrealized gains, which would be a significant shift in how we view income,” said Joe Bishop-Henchman, vice president of tax policy and litigation at the National Taxpayers Union Foundation. “There’s a big suspicion of direct taxes, of giving the central government this power.”
Recently, as officials in Hong Kong signaled new regulations for cryptocurrency exchanges, Mr. Bankman-Fried set up shop in the Bahamas, where there is a legal framework that he says meets his business’s needs. Still, he is active in the United States. FTX has a U.S. exchange and has sponsorship deals with American sports leagues and players to promote its brand. Its founder donated about $5 million to a group supporting Joe Biden’s presidential campaign last year.
In comments denouncing the proposed billionaire tax, Mr. Manchin described the ultrawealthy as people who “create a lot of jobs and invest a lot of money and give a lot to philanthropic pursuits.”
That was an implicit endorsement of the idea, often repeated in discussions around high-net worth giving, that regular people pay taxes while rich people pursue philanthropy, giving not to the Treasury but to their preferred causes. “My plan is to use the money to get humanity to Mars and preserve the light of consciousness,” Mr. Musk said in a subsequent tweet in response to the tax proposal.
“That idea that ‘it’s my money and I should decide what to do with it’ is very dominant, and it goes along with the culture of individualism that allows people to feel that they’ve done this on their own and haven’t benefited from social goods like roads and education and laws,” Professor Sherman said.
Ms. Disney, who is an active member of the Patriotic Millionaires, said she sees that thinking as a primary obstacle to raising taxes on the richest Americans. “Billionaires may be brilliant — and I don’t doubt Elon Musk’s I.Q. — but they don’t do anything on their own,” she said. She also questioned the prevailing wisdom among the country’s wealthiest that they know best and the government shouldn’t be trusted with their money.
“The last time I was in the Bay Area, I went walking in the marina and saw seven consecutive boats named after characters from Ayn Rand,” Ms. Disney said. “They need to come to their senses.”
Nicholas Kulish is an enterprise correspondent for the Times writing about philanthropy, wealth and nonprofits. Before that, he served as the Berlin bureau chief and an East Africa correspondent based in Nairobi. He joined The Times as a member of the Editorial Board in 2005. @nkulish
Ephrat Livni reports from Washington on the intersection of business and policy for DealBook. Previously, she was a senior reporter at Quartz, covering law and politics, and has practiced law in the public and private sectors. @el72champs
