Even some Democrats holding their nose at the party's new plan for 'billionaire's tax'

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Democrats, who are scrambling to raise revenue for President Biden’s unfinished $2 trillion social welfare plan, managed to find a tax hike that even fellow Democrats don’t like.

Senate Democrats’ latest scheme is a new tax on billionaires, a proposal that opponents warn will decimate the stock market, drive the nation’s most successful entrepreneurs out of the U.S. and eventually hit less-wealthy taxpayers.

Some of that opposition comes from lawmakers such as Richard Neal, Massachusetts Democrat and chairman of the tax-writing House Ways and Means Committee. He said implementing a tax increase on billionaires’ “unrealized” gains in stocks and other assets “will be a challenge.”

“If you have a bad year, how do we do it?” Mr. Neal said. “All the proposals that I’ve seen so far not only don’t simplify the tax code, they make it more complicated.”

Senate Finance Committee Chairman Ron Wyden, Oregon Democrat, is introducing the fine print of the proposal Tuesday night. It calls for taxing the liquid assets of roughly 700 billionaires, the wealthiest 0.0005% of Americans.

“This is a billionaire’s income tax,” Mr. Wyden told reporters Tuesday. “It’s not a wealth tax. I’ve always felt that success was giving everybody in America the chance to get ahead. And what we’re dealing with is flagrant loopholes in the tax code.”

The tax would apply solely to people with at least $1 billion in assets or $100 million in income for three straight years.

On tradeable items such as stocks, billionaires would still pay a tax even if they held on to the asset. They would be taxed on any increases in value and take deductions on losses. Under current law, those assets get taxed only when they’re sold or a profit is realized.

House Speaker Nancy Pelosi, California Democrat, estimated the plan would raise $200 billion to $250 billion over 10 years, far short of the total spending proposed in Mr. Biden’s “social infrastructure” package.

Treasury Secretary Janet Yellen said the tax “would help get at capital gains, which are an extraordinarily large part of the incomes of the wealthiest individuals, and right now escape taxation until they’re realized.”

But House Budget Committee Chairman John Yarmuth, Kentucky Democrat, said he’s concerned that the plan wouldn’t generate consistent annual revenue, compared with an income tax increase on marginal rates.

“To think of it as a revenue raiser, you’re trying to predict the stock market,” he told reporters.

Republicans say the proposal is a half-baked rush job that will have negative unintended consequences.

Sen. Mitt Romney, Utah Republican, said Democrats haven’t thought out the impact of their proposal. Some predicted that billionaires would move money into assets for which annual appreciation is difficult to calculate, such as artwork.

“You’ll get billionaires taking their money out of job creation [in the stock market] and putting into assets that don’t create jobs. That’s a bad idea,” Mr. Romney said. “I don’t want to raise taxes at all, but it’s a lot safer to do something on a marginal basis in the current tax code than to come up with a new way of taxing people that has unintended consequences.”

Rep. Kevin Brady of Texas, the top Republican on the Ways and Means Committee, said France abandoned a similar tax in 2018 after finding that it discouraged investors from spending on projects that would create jobs.

“If a country like France has learned the lesson that a wealth tax hurts their economic growth and their investment in their local economies, why would America even go down that road?” Mr. Brady said Tuesday. “It’s impossible to implement [and] likely unconstitutional.”

The Constitution says that taxes “shall be … in Proportion to the Census” — all federal taxes, in other words, must be geographically uniform, but direct taxes must be apportioned.

Joe Bishop-Henchman of the National Taxpayers Union Foundation argued in a report this week that legal precedent points to a wealth tax being unconstitutional.

“It is a direct tax within the meaning of the Constitution, and its enactment without apportionment would be unconstitutional,” he wrote.

Democrats arrived at this point because Sen. Kyrsten Sinema, Arizona Democrat, opposed a House-passed plan that would raise taxes on corporations, capital gains and taxpayers earning more than $400,000 per year. That proposal was expected to raise about $850 billion.

As one of 50 Democrats in the evenly divided Senate, Ms. Sinema’s vote is needed to push any tax plan over the finish line.

Mr. Neal said he explained to Ms. Sinema that his alternative proposal for a 3% surcharge on income over $5 million, but got no reaction from her. He said this week that he believes the House-passed tax plan benefits from “efficiency and predictability” and expressed some frustration at having to mollify Senate Democrats.

“We’re all of a sudden not talking about a plan that’s been vetted and passed, we’re talking about the objections of a couple of people,” he said in an apparent reference to Ms. Sinema and holdout Democratic Sen. Joe Manchin III of West Virginia.

Another proposal would impose a “minimum book tax” of 15% on corporations to raise another $150 billion.

Sen. Elizabeth Warren, Massachusetts Democrat whose 2019 bill is the model for the billionaire’s tax, said the U.S. must make changes in its tax laws to restore fairness.

“From all that’s going on right now, it is not right when Amazon reports $10 billion in profits and pays nothing in taxes,” she said. “It is not right when Jeff Bezos sits on a mountain of money bigger than Mount Everest and pays only on the $83,000 in income. Americans understand that our tax system is rigged. And this is our chance to fix it.”

This story is based in part on wire service reports.

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