Billionaire Tax Impact on Wealth Management

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Wealth Management Information From Biden;s 2023 Budget Proposal

Billionaire Tax proposed in President Biden’s 2023 Budget Plan

At the end of March 2022, President Biden proposed the “Billionaire Tax” a.k.a the Billionaire Minimum Income Tax (BMIT). This tax requires the wealthiest Americans to pay tax of at least 20% on all income. The White House states that currently “billionaires” pay an average of only 8.2% of their income in tax. This minimum tax would apply to the wealthiest .01 percent of households with an income of more than $100 million (which is 900,000,000 short of a billion.)

If approved, the billionaire tax would apply to both income and unrealized gains. An unrealized gain means the increase in value of certain assets, such as stock, real estate and other investments—even if they aren’t sold. Our current tax law typically taxes gains upon the sale of the asset. A recent Forbes Real-Time Billionaires ranking lists 21 Illinois residents among those likely-affected by the tax. This is real time wealth management information.

Will it Affect My Wealth Management?

Under the BMIT, wealthy households who paid 20 percent of tax won’t pay any additional tax. However, if they paid less than 20% of their total annual income, they would need to top-up their tax payment. The proposal would allow wealthy households (billionaires!) to spread initial top-up payments on unrealized income over nine years, giving them more time to pay and allowing families to stretch payments over five years on any new income.

The proposed tax would increase revenue by $360 billion over ten years, according to the White House. The new tax could affect 700 wealthy billionaires. For 2021 alone, billionaires saw a $1 trillion dollar increase in wealth. The proposed tax is a prepayment of tax obligations, which means wealthy households would pay taxes in advance.

Opponents of the proposal argue that collecting the new tax may cause an administrative nightmare for the IRS and taxpayers who are subject to the tax. It would be very challenging to determine the worth of some assets and tax them appropriately. According to the Tax Foundation, Biden’s proposal would impose a complicated tax on a narrow segment of high-earning households in a way that’s never been tried. This adds new compliance and administrative challenges for an already overburdened IRS.

The White House believes this proposal will make the American tax code fairer and reduce the budget deficit. The 2023 budget includes other revenue raisers affecting individuals, such as hiking the top marginal tax rate, higher levies on capital gains for earners above $1 million and treating certain property transfers like a sale, among others. The budget also proposes raising the corporate rate to 28% and curbing the use of tax havens by multinational corporations that attempt to undercut a global minimum tax rate.

Will the Billionaire Tax Come to Pass?

Sen. Joe Manchin (D-W.Va) is on record as being against the proposed billionaire tax along with several Republican senators. According to Senator Manchin, you can’t tax something that’s not earned. One example is a stock that has increased in value but hasn’t been sold.

The proposed tax is part of Biden’s 2023 budget. It may become law, undergo changes or even be removed. With no way of knowing next steps, it might prove advantageous to shift assets into irrevocable trusts now. It is possible that assets in trusts might avoid being included in the calculation of net worth for the “Billionaire’s Tax.” Talk to your advisors for how to use this wealth management information.