It’s pretty much the most progressive tax proposal ever drafted—a “billionaires tax” targeting the unrealized asset gains of about 700 of the nation’s wealthiest people. Introduced by Senate Finance Chairman Ron Wyden (D-OR), the tax is one proposed way to raise money for the Democrats’ expansive domestic agenda. And it would do so handsomely.
Before the pandemic and especially during it, America’s billionaires have seen their wealth skyrocket so quickly that this tax plan, which would exact a 23.8% capital gains tax on their unrealized gains (based on those assets’ original price, to be paid over five years), could net the U.S. treasury a quarter of a trillion dollars or more, enabling higher federal spending with less pressure on the rest of us.
And only the very richest need be concerned, since the levy would only kick in for people with more than $1 billion in assets or more than $100 million in income for three consecutive years. The proposal also calls for an annual capital gains tax on any increase in that cohort’s assets over the following years.
As a surgical measure to curtail the economy’s most extreme inequities, the billionaires’ tax could be politically popular. But it’s also likely doomed, in part because unelected U.S. President Joe Manchin (D-WV) doesn’t like it. (I should probably note that Manchin’s actually a senator from West Virginia, whose centrist stances in an almost equally divided chamber make him and fellow Democratic Sen. Kyrsten Sinema two of the most powerful people in the country right now.)
Speaking with the press on Tuesday, Manchin laid out his objections. “I don’t like the connotation that we’re targeting different people,” he said. According to Manchin, those people—the billionaires—“create a lot of jobs and invest a lot of money and give a lot to philanthropic pursuits.” He went on, “It’s time that we all pull together and row together.”
Yet again, we see philanthropy invoked as a rationale for why the super-rich should hold on to their vast fortunes, which is an odd juxtaposition when you think about it. Yet again, private giving serves as political cover for the ultra-wealthy, who’ve often pledged to commit their fortunes to the public good while resisting anything that might obligate them to do so.
It’s bad enough that philanthropy is posited as a replacement for taxation rather than a supplement to it. But the bigger problem is that even if philanthropy could stand in for taxes, billionaires aren’t actually giving very much of their money away, relatively speaking. If the super-rich weren’t so stingy, these arguments about the great worth of billionaire super-citizens might hold more water.
As it turns out, the philanthropic sector resists efforts to increase charitable payout just as staunchly as billionaires and their political allies resist efforts to raise taxes. If opponents of higher taxation are so keen on philanthropists solving social problems at their own discretion, shouldn’t we at least make philanthropic payout a little closer to the scale of the gaping holes in public provision? Instead, the professional philanthrosphere consistently refuses to “pull and row” together in pursuit of the next best thing to more progressive taxation, which is some kind of comprehensive philanthropic reform.
On both fronts, the country is losing its patience with the unwillingness of the ultra-wealthy to release their grasp on their incredible fortunes, and something has to give.
Allocation or accumulation?
The proposed billionaires’ tax may lack bipartisan potential, but it’s a strong political bet. Even all the temporarily embarrassed millionaires shouldn’t find it objectionable. Meanwhile, philanthropic reform along the lines of the Accelerating Charitable Efforts (ACE) Act is both popular with the masses and actually does boast some bipartisan support.
But neither option is popular with the super-rich, and therein lies the rub. Elon Musk, currently the world’s richest person, went to bat for his 700-member tax bracket this week. “Eventually, they run out of other people’s money and then they come for you,” Musk tweeted in response to a post criticizing the billionaire’s tax.
By the way, the post Musk replied to was a sample letter warning of “scope creep,” in which the government initially extends taxes on unrealized gains down to millionaires and then to everyday retirement accounts—something a man as smart as Musk should know is politically absurd.
Musk doubled down on his plutocratic defense later that day, tweeting, “Who is best at capital allocation—government or entrepreneurs—is indeed what it comes down to. The tricksters will conflate capital allocation with consumption.”
Musk is right on one count: “capital allocation” is the big question. But what the Tesla founder and his cohorts are doing is neither allocation nor consumption. It’s accumulation (some call it hoarding), either by design or by the mere fact that their assets are growing so fast that there’s no way for them to “allocate” even if they wanted to. Just look at MacKenzie Scott, whose wealth keeps growing even as she rolls out an unprecedented fusillade of big grants.
The light of conscience
Of course, Musk was probably referring to investment and entrepreneurship, rather than philanthropy. He may have even been talking about settling on Mars and preserving the light of consciousness. But to return to Earth for a second, these mega-corporations still operate upon publicly financed infrastructure, rely on technologies developed via federal R&D, and serve customers who can spend because they live in a society with law, order and basic functionality.
More to the point, Musk’s conflation of all private spending into the category of “entrepreneurs” gets at one of the underlying problems with philanthropy. That’s the idea that philanthropy is a subsidiary function of private business and private businesspeople, rather than what it’s always claiming to be—a third sector with a meaningful distinction from private enterprise.
Years of “philanthrocapitalism” and social entrepreneurship messaging have done a lot to erode that distinction, with full buy-in from the professional philanthrosphere. So has the tendency of the new philanthropists to favor LLCs, DAFs, and pretty much anything more trendy than the boring old private foundation. Conveniently, many of these new giving vehicles—DAFs in particular—let the super-rich sidestep both taxes and transparency.
Reform is in order. And to those who argue that things like mandated DAF payout or greater transparency would depress giving, isn’t giving by the super-rich already depressed? Only eight billionaires on this year’s Forbes 400 list have given away more than 20% of their wealth. Actual money out the door from top figures like Musk and Bezos amounts to a tiny fraction of their net worth, and even leading philanthropists like Bill Gates and Michael Bloomberg come in below that 20% mark.
If billionaires want to allocate, let them allocate. According to one estimate, Elon Musk would owe $50 billion under the proposed tax plan, while Jeff Bezos would owe $44 billion and Mark Zuckerberg would owe $29 billion. If they actually gave away that much to the charities of their choice over the next five years, maybe Manchin’s point would stand. Until they do (they won’t), anti-billionaire sentiment will continue to grow, along with the political will for some kind of ultra-progressive tax. And next time, the billionaires might not have Manchin around to save them from getting just a little less obscenely rich.