Opinion: Jeff Bezos and Elon Musk would have to pay this tax
Decades ago, I coined the phrase “Buy Borrow Die” to describe how rich Americans avoid paying their fair share of taxes. The recent ProPublica reporting on the techniques used by the rich to pay little or no income taxes by borrowing based on the increased value of their assets and holding onto them until death, bears out the point. For a long time, I’ve been following the failure of Congress to do anything at all to tax the rich, and so the recent debates about funding President Biden’s “Build Back Better” plan are of keen interest to me.
Enter Wyden’s Billionaires’ Tax Plan. Public discussion about the plan has focused on the tax as some strange new beast. It is not. Nor is it a “wealth tax,” potentially liable to Constitutional challenge.
The plan, however complex it may end up being in its many devilish details, rests on a surprisingly simple idea: that billionaires should pay tax on their incomes, just like tens of millions of working Americans do every year. That’s hardly radical stuff.
It all starts with the idea that an income tax is supposed to tax the gains from both labor and capital, the two major sources of one’s “income.” Our income tax does not. Ever since 1920 at least, the US has failed to tax the rise in value or “mere appreciation” of an asset until it is sold or otherwise disposed.
Many readers know this from owning a home: When your house rises in value, you do not have to tell the IRS about the good news. The trouble comes when billionaires like Elon Musk or Jeff Bezos own stock in corporations like Tesla or Amazon that never pay dividends. Rather than draw a salary, they reap their compensation in the form of higher stock value. This is the Buy step, the simple advice to buy assets that rise in value without ever paying out cash for the government to tax.
So the rich hold a lot of non-cash bearing assets. Where’s the harm in that? The trouble continues because the fortunate few can take advantage of their “unrealized appreciation” when they borrow, which is tax-free under an income tax. (Once again, homeowners know this because they can take out home equity loans without paying any income tax.)
If the rich hold both assets and debt at death, everything gets reset under current law, as their heirs inherit the assets without any income-tax obligations. That’s Buy Borrow Die, the simple advice that has been perfectly legal for over a century and which Musk, Bezos and others have taken to the extreme limit of not paying any income tax at all in some years.
That’s a problem. America taxes work, not wealth, and those with plenty of wealth can live well — rocket ships to space and more! — tax-free, without even having to work.
Senator Wyden’s Billionaires’ Tax Plan would change this situation by making America’s billionaires — there are over 700 of them at last count — pay tax each year on the rise in value of their assets. This is income the rich can convert to cash by borrowing. It should be taxed. Billionaires have no compelling reason not to pay tax on it. For those worried about such things, the plan will include provisions for tax relief in those occasional years when billionaires’ wealth declines.
The Billionaires’ Tax Plan is not a wealth tax. It is a step needed to perfect the income tax, to make it be what is was always supposed to be: a tax on both wealth and work. Income is income, and the “income” that comes without having to break a sweat or get out of bed deserves to be taxed at least as much as the income most of us get by actually grinding it out on most days.
In the end, the Billionaires’ Tax Plan might not come to pass this time around. If it does, it will only be a small step towards making the income tax a true income tax and getting all Americans to pay their fair share. The plan will be complicated, costly, and may not raise much revenue in the end.
My preferred idea, which I have laid out in book form, is for a progressive spending tax, which would tax all Americans when they spend, not when they work, save, give or die. That will take more time to design, explain, and enact: It is hard to change a century of non-taxation of the wealthy in a single legislative act.
But the morality of the moment comes down to simple math: Something is better than nothing. The Billionaires’ Tax Plan is not a perfect solution to the problem of wealth inequality or even to the structural problems in our tax system, as illustrated by Buy Borrow Die. But right now, billionaires like Musk and Bezos have the ability to avoid paying any income tax.
That has to change, and the sooner we get started changing it, the better. A century is a long time to wait for the wealthiest persons in the history of the world to pay something to their home country. And something is better than nothing.
