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Wyden’s Proposed New Income Tax On Billionaires

October 28, 2021

Bernie Kent



Senate Finance Committee Chairman Ron Wyden has released a draft of his proposed tax on the unrealized gains on billionaires (estimated to be less than 1,000 taxpayers in the U.S.). Currently there is no income tax on the increase in the value of an asset. The increase in the value of an asset is taxed only when the asset is sold, and the gain is both realized and recognized. Mr. Wyden’s bill would create a new tax for the super-wealthy on their publicly-traded securities (such as stocks, bonds and mutual funds). Each year the value of these securities would be “marked to market” and the increase in value would be taxed at the 23.8% long-term capital gains rate. If there were a net decrease in value of the publicly-traded securities, the loss could be carried back three years to create a refund (only to the extent of prior mark-to-market gains).

Billionaire’s assets which do not have a readily ascertainable market value would not be subject to the mark-to-market tax due to the difficulty of valuing such assets and the lack of liquidity with which to pay the tax. Instead nonpublicly traded assets (such as real estate, art and closely held businesses) would be subject to a new tax at the time the asset is sold, thus eliminating the valuation and liquidity concerns. The tax would be calculated by assuming that the income recognized had been earned and taxed ratably throughout the holding period and subjected to an interest charge (at the same rate as is charged for underpayment of tax). The combined capital gain tax and the interest charge would be capped at 49% of the gain. The tax on illiquid assets would not apply to charitable contributions but would apply to most any other form of asset transfer.

The effective date of the proposed bill is January 1, 2022. Elon Musk’s income tax for 2022 could be more than $60 billion under this proposal! The bill would permit payment of the initial year’s tax over five years, which might limit market disruption from forced sales needed to pay the tax.


Additional costs to the government and the taxpayers of collecting the tax would be minimal. The tax would apply to a very small number of taxpayers. It is easy to calculate the value of publicly-traded securities. Cheating would also be difficult due to the availability of third-party reporting sources. The taxpayers involved may need to sell assets to pay the tax, but since the securities are publicly-traded, there would be a market in which to sell. Large amounts could be raised from a small number of taxpayers who have the wherewithal to pay the tax.  As a practical matter, it is difficult to tax this income. But when limited to publicly-traded securities of a small number of taxpayers, the practical problems are dissipated.


Wealthy taxpayers whose wealth does not come from publicly-traded securities may not be certain whether they are subject to the proposed tax. The tax applies to taxpayers whose net worth exceeds $1 billion at three consecutive yearends (also to taxpayers whose adjusted gross income exceeds $100 million for three consecutive years). Taxpayers whose net worth is close to the threshold may need to hire appraisers to value their nonpublic holdings each year to determine if they believe they are subject to the tax. Even then, the IRS, with the benefit of hindsight, may question the decision of taxpayers who claim they are not subject to the tax.

One can argue with the fairness of taxing publicly-traded securities differently than other increase in wealth. Would this change the relative valuations of publicly and nonpublicly traded assets and discourage investment in more liquid assets? Very successful private companies would be much less likely to have an IPO or to merge into a publicly traded company if this proposal were enacted. There would be a divergence of interest between entrepreneurs who would have less reason to access the public markets and venture capitalists who want a liquidity event. This is particularly true for partners such as pension plans, foundations and other investors who do not pay tax on their gains. Undoubtedly there are many more economic consequences to private companies delaying access to public markets.

Another concern is market liquidity. Even with publicly-traded securities, the sale of an unusually large block of stock in a short time can result in a market disruption. Company founders often own a large percentage of the company’s stock, even when it becomes traded on an exchange. At death, the estate tax law permits a “blockage discount” in valuation of public securities. Ignoring the blockage discount would result in a tax on value that does not really exist. Since the tax would only apply to the annual increase in value at a 23.8% tax rate (plus state income tax), the amount of blockage discount would be much less significant than the discount that would apply to the entire block.

Some may suggest that if this tax is imposed, billionaires will leave the country taking jobs with them. I believe that even if wealthy people who are subject to this tax chose to expatriate, the citizenship and location of the shareholders would have minimal, if any, impact on the employment of people who work for these businesses. Also, our current tax law makes it quite difficult for taxpayers to give up their US citizenship and leave the country without paying tax on their appreciated assets. 

Wealth Tax

Some people may object to this tax as a “wealth tax” and claim that it is unconstitutional since the Sixteenth Amendment to the U.S. Constitution only permits a tax on “income” to be levied without apportionment among the states. This issue will surely be brought to the Supreme Court. I believe they will decide that this tax is permitted under the Sixteenth Amendment. A tax on the value of an asset is a wealth tax. A tax on the increase in the value of an asset is an income tax. The fact that this income is not taxed under current tax law arises from the difficulties in tax administration rather than the proper definition of income. Taxing the accretion in wealth complies with sound theories of income taxation. Any accretion to wealth can be considered income.

Final Thoughts

The concept of taxing the annual appreciation has been around for many years. This is its moment in the sun. If any Democratic senator choses to vote against this proposal, it will not become law. If this proposal is enacted, many billionaires will need to start planning immediately to determine how to manage this potentially very significant cost. Warren Buffett has been widely quoted as saying that it is wrong that he pays a lower rate of tax than his secretary. I wonder if he also thinks it is wrong that he has paid individual income tax on basically none of his $60 billion net worth (which won’t be subject to income or estate tax at his death since he is leaving it all to charity).