Biden’s proposal taxes non-existent income

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(AlenaMozhjer / Getty Images)

Biden’s latest proposal: an income tax on income that doesn’t actually exist.

The The year 2021 has seen President Biden and the Democrats in Congress explore, very publicly and painfully, seemingly every possible way to raise more tax dollars from the American people. This exploration has taken place even though the federal government has just enjoyed the largest collection of revenue in two decades, inflation is higher than it has been in three decades and Senator Kyrsten Sinema (D., Arizona) has pulled all tax rate increases off the table. .

Desperate for any new tax at this late hour of socialism’s ‘Build Back Better’ soap opera, all hands rallied for perhaps the craziest idea yet – an income tax that doesn’t actually exist. .

Certainly, things are fluid at the moment. Democrats haven’t released an actual plan, so political analysts have tried to piece things together based on past proposals. But one proposal involves what Democrats call “market value” taxation, as usual masking a senseless tax idea in an opaque and opaque discussion.

This new policy would impose, for the first time in American history, the annual increase in the value of assets held by “the rich” (those people over there). It doesn’t matter whether the taxpayer in question sold the asset and made a real profit or not – the mere increased gain in value would be enough to trigger an annual tax. If certain versions of the proposal prevail, it could mean that, if your home has appreciated in value last year, Uncle Sam will want to tax you on the growth of his Zillow Zestimate.

Needless to say, this “Zillow Tax” idea comes from the outer margins of Overton Window tax policy. The American people seem to agree. In an investigative experiment conducted by Zachary Liscow of Yale Law and Edward Fox of Michigan Law School, respondents said with a 3 to 1 margin that they preferred the taxation of stocks to happen when they were actually taxed. sold.

Then there is the small problem that a Zillow tax is unconstitutional. As Joe bishop-henchman of the National Taxpayers Union (NTU) has repeatedly pointed out that such a tax violates the standard established by the Supreme Court in Eisner vs. Macomber (1920). In the present case, the Court explicitly rejected a tax on the capital gain of a stock which had not actually been sold:

Income can be defined as the gain from capital, labor, or both combined, including profit obtained from the sale or conversion of capital. Merely growing or increasing the value of a capital investment is not income; income is essentially a gain or benefit, in itself, of exchangeable value, derived from capital, separate from it, and derived or received by the taxpayer for its separate use, benefit and disposal.

A Zillow tax might make sense as a way to overcome the mere trifles of overwhelming public opposition and unconstitutionality at the faculty cocktail party. But what about the many practical questions that tax professionals – many of whom are not Conservatives – have raised? Steve Rosenthal, of the Liberal Tax Policy Center, sent a friendly warning to Senate Finance Committee Chairman and Oregon Democrat Ron Wyden (Congress’ biggest promoter of the Zillow tax) earlier this year . He pointed out that it might be easy to estimate the growth of financial securities (stocks, bonds, mutual funds, exchange-traded funds, etc.) and even real estate (annual valuations by tax collectors property would do), it is much more difficult when it comes to things like intangibles, private companies, works of art and collectibles, etc.

Rosenthal also raises the delicate issue of losses. Should the IRS be a full partner in accumulated and unsold gains, but not in accumulated and unsold losses? If a taxpayer’s net worth increases by $ 1 million in a year, he owes tax. But suppose it drops $ 1 million the following year? Does he benefit from a deduction? If not, can he carry the loss over to future earnings? Can it index its base and / or its loss carryforwards to inflation? It’s a mess.

Georges callas, former tax aide to House Speaker Paul Ryan and Ways and Means House Speaker Dave Camp, had other practical issues with the Zillow Tax: what about earnings accrued before the date of enactment ; what about taxpayers who float above and below the income and asset thresholds set by Congress; how to deal with things like zones of opportunity, like-minded exchanges and other established capital gains practices, etc.

Nicole Kaeding, formerly of NTU and now at Amazon, raised many of these concerns in December 2019. She also raises other issues, such as how billionaires will play the system, the effect on the federal budget during downturns economic, and the effects on foreign direct investment in the United States.

Rift the Wall Street newspaper Tax reporter Richard Rubin had a question-and-answer session this morning to sort out some of the other sticky issues surrounding a Zillow tax. George Mason University professor Tyler Cowen would like to know how this affects options, derivatives and other complex financial instruments that are common in the dominant heights.

Even Kim Clausing, President Biden’s assistant deputy treasury secretary for tax policy, said earlier this year that a Zillow tax was “not ready for prime time.” Maybe she should tell her boss, Janet Yellen.

There are a few signs of composure prevailing among Democrats over the Zillow Tax. House Ways and Means President Richard Neal of Massachusetts said of this last week: “We talked about it a bit, but I pointed out that it was the ninth inning. When are you going to look at these issues? That’s a good question, given the barrage of detailed and important considerations that I’ve barely summarized above.

Like all taxes, the Zillow Tax might start out as a tax on a few hundred billionaires (and let’s be honest, they’ll probably find a way to avoid paying it), but it will almost surely reach Joe and Jane Suburbs before long, time. being a variable. There is no greater precedent for this than the income tax itself, which originally only applied to plutocrats and is now paid by garbage collectors. There are many other such cases (death tax, Spanish-American War telephone excise tax, etc.) too numerous to mention.

Many, if not most, of these criticisms still apply to the softer versions of the proposal, even those that don’t involve real estate. Taxing shadow income would be a tectonic shift in the way we think about taxation – the details of the initial size and scope of such a tax are pale in comparison.

So the lesson is this – the next time you’re on Zillow, and you get that rush of excitement to see your home’s value rise, just remember Uncle Sam is hiding outside your door, ready to take a piece of it. .

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Ryan Ellis is the President of the Center for a Free Economy and an IRS Enrolled Agent.



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