THE BIG PROBLEM WITH BIDEN’S NEW ‘MINIMUM TAX’ ON BILLIONAIRES:

What does a president do when inflation surges under his watch, gas prices are out of control, and his signature legislation has failed miserably ?

Pivot back to scapegoating the rich, apparently.

At least, that’s President Joe Biden’s latest tactic. On Monday, Biden proposed a new “minimum tax” on billionaires. “For too long, our tax code has rewarded wealth, not work, and contributed to growing income and wealth inequality in America,” Biden said in a statement. “Under current law, when an American worker earns a dollar of wages, that dollar is taxed as they earn it. But when a billionaire earns income because their investments increase in value, that gain is too often never taxed at all.”

A White House fact sheet says this tax would apply to those worth over $100 million and force them to pay a minimum tax rate of 20%. It would do this by taxing unrealized capital gains, aka the nominal growth in value of stock investments that haven’t been sold off yet. There is already a tax on capital gains that the wealthy pay when they cash out their stock options. However, Biden’s tax proposal is seemingly aimed at the growth in “unrealized” investments held by many billionaires, who currently do not have to pay taxes until they cash it out.

At first glance, this might seem like a sensible way of cracking down on rich people (legally) evading taxes.

It is not.

Taxing unrealized gains is both fundamentally unfair and economically absurd. “The Biden tax plan is crackers,” Cato Institute economist Chris Edwards said. “Unrealized gain is not income. It represents the expectation of future income, which would be taxed in the future under a well-designed tax system. Often, expected future income doesn’t materialize and asset values drop.”

Moreover, a “capital gain” is just a fancy way of saying “value gain on a productive investment.” It’s simple Economics 101 that when you tax something, you get less of it. Do we really want the tax code to (further) discourage productive investments?

Philosophically, I certainly understand the desire not to increase taxes on high earners. But I also understand the reverse: “They installed this regime, so let them get it good and hard.”