Billionaires beat rich workers in Biden spending bill

In the end, it was millionaires versus billionaires. Millionaires have lost.

Months of wrangling over how to offset the cost of the Biden administration’s welfare spending bill seemed to culminate in a chaotic Wednesday on Capitol Hill, as hugely substantial tax and spending provisions were included in the bill. final agreement or left out.

The most striking thing about the tax provisions that have been incorporated into the framework President Biden announced Thursday is how they preserve the ability of business owners to accumulate vast fortunes with minimal taxation – while extracting more money from the highest paid people they employ. It is these “rich workers,” as investor Clifford Asness called them, who would foot much of the bill for an expanded welfare system.

Jeff Bezos, the founder of Amazon which is worth nearly $ 200 billion, would see little change in his very favorable tax situation. Andrew Jassy, ​​who succeeded Mr Bezos as chief executive and received around $ 36 million in compensation in 2020, will likely owe more taxes if the Democrats’ framework becomes law.

Billionaires who own NFL teams have done well. League commissioner Roger Goodell, who is said to be paid $ 40 million a year, will owe a lot more in taxes, as will the 162 NFL players who are expected to earn more than $ 10 million this year.

In the realm of fiction, fans of “Succession” can rest assured that the depraved descendants of the Roy family, owners of the media conglomerate, will enjoy their wealth with little interference from the tax authorities. The highly paid aide – like CFO, Karl – will pay more.

This is the simple conclusion to draw from the list of what is and is not in the Compromise Agreement after it has gone through marathon negotiations.

The agreement includes a new five-percentage-point surtax on income over $ 10 million and an additional three percentage points on income over $ 25 million. So a CEO who earns $ 30 million would have to pay an additional $ 1.15 million in federal income tax than the current law.

This could be particularly significant for people who have an exceptional income over a year or a few years. A lottery winner, or even a professional athlete or actor with only a few years of very high income, would qualify. Earning $ 50 million in a single year would result in a significantly higher tax burden than $ 10 million per year for five consecutive years. The surtax could, among other things, increase the incentive for employers to offer deferred compensation arrangements to their highest-paid workers.

Meanwhile, owners of a business would continue to be able to accumulate wealth as it becomes more valuable over time and would only be taxable on earnings if they choose to sell shares. The Democrats’ framework does not include any of the many provisions that would have targeted these pools of wealth.

Most notably, in recent days, Democrats were seriously considering what they called a “billionaire tax,” which would have forced Americans with a fortune of over $ 1 billion to pay a capital gains tax on assets. as their value increased, not just when those assets were sold. .

The billionaires’ tax would have affected some 700 families, while 22,000 tax returns in 2018 reported income above $ 10 million, the threshold to which the surtax would apply.

But senators, including West Virginia’s Joe Manchin, rejected the idea on Wednesday, and it was dropped in the latest push in negotiations. In truth, it was only the latest in a series of proposals aimed at dynastic wealth that was not included in the deal.

This includes the elimination of the “reinforced base”. Right now, a person can accumulate assets over the years without paying tax on them and then pass them on to heirs whose cost base is reset to their higher valuation. It is a mechanism by which great fortunes can be built and passed down from generation to generation without paying too much tax.

President Biden had proposed taxing unrealized capital gains of more than $ 1 million upon a person’s death, a provision that was not included in this week’s deal. He also proposed to increase the capital gains tax rate for those with more than $ 1 million in gains. Neither is part of the interim agreement.

The same can be said of closing the deferred interest loophole, which allows private equity executives and others who manage investments to, in effect, treat profits as capital gains. low tax rather than higher tax income.

The tax code favors investment income over wage income in a number of ways, including the maximum tax rate of 20% on long-term capital gains which is much lower than the maximum tax rate of 37%. .

The logic is that this encourages investments that boost long-term economic potential – that the tax code should give people reasons to put capital at risk in order to increase the size of the economic pie. But one of the results is that top earners face higher tax rates and fewer opportunities to delay or avoid taxes than those who make more money from their investments.

So it shouldn’t be too surprising that successful high earners aim to turn small fortunes from their labor into large fortunes tied to capital. You see it in business ventures owned by media stars like Oprah Winfrey and Tyler Perry, and athletes like LeBron James and Tom Brady.

The age-old tension between labor and capital might not have the same feel when the workers in question are richer than most people could ever dream of. But the last few days on Capitol Hill suggest that in a political battle between the working rich and the really rich, it is the rich who have political power.