by Neil H. Buchanan
Although it is already on political life support (due to -- no surprise -- reported opposition from Joe Manchin), an important and quite appealing tax-the-ultrarich proposal was announced this week. Dubbed (both accurately and for maximum political impact) the Billionaires Tax, it is a limited repeal of a longstanding tax giveaway to the tiny number of lucky people who can avoid receiving their incomes in the form of salaries or wages -- that is, extremely wealthy people.
Soon after Oregon Senator Ron Wyden announced the plan, I received an email from a reporter for a financial network, asking if I could discuss the constitutionality of the Billionaires Tax. I thought: "Wait, what? This is a tax on income. What could possibly be the constitutional question?" But sure enough, the Republicans' responses to the plan have included, well, not exactly arguments but more like hopeful rumblings that somehow, maybe this is unconstitutional. Good luck with that.
As I noted in my new Verdict column today, however, a helpful New York Times summary of the plan and the quick-take political response to it ended with this: "But the 700 or so billionaires that would be hit with the tax would most likely disagree that unsold assets could be considered income, and they will have the wherewithal to take the matter to the Supreme Court, if necessary." So again, there is not a response so much as the belief that people with enough money can always buy a response and then ram it down the political and legal systems' throats. That might end up working, for reasons that I explain in my column, but if it does, it will not be for reasons even within earshot of principled arguments.
I am likely to write a followup piece on Verdict discussing some additional constitutional side issues that might start to dribble out of the mouths of the same people who, say, argued that Congress in 2017 repealed sub silentio the Affordable Care Act (an argument that a majority of even the current Supreme Court seems likely to have rejected had they not dismissed the case on standing grounds). The right's litigation machine is nothing if not relentless, and they might yet come up with another Hail Mary along the lines of the action/inaction distinction in the first ACA case, to give the Court's arch-conservative bloc an excuse to kill a tax on their benefactors. Writing about terrible constitutional arguments is usually tedious -- and writing about them twice in succession is excruciating -- but this might end up being mildly important.
Here, however, I want to have some fun with a Washington Post columnist's attacks on the Billionaires Tax. Typically, when I critique arguments proffered by op-ed hacks at the major newspapers, I collect a few useful nuggets from a number of the usual suspects and try to put them in context as I build toward a larger point. Sometimes, however, one op-ed is just so wonderfully inane that it can be educational to focus on it in its entirety. This is one of those days.
The piece in question is by one of The Post's resident conservatives, Henry Olsen. Olsen is by no means the most extreme of that paper's Republican apologists, but his usual fare is best thought of as a failed attempt to mimic David Brooks's pompous style, but further to the right. After I finished reading the piece that I will discuss here, I looked up Olsen's bio and discovered that he actually has a law degree, which says bad things about his alma mater, his retention of knowledge, or both.
So, under the title "Biden’s latest tax-the-rich scheme would be an unworkable and possibly unconstitutional mess," what do we find? (Note: I will not address the arguments in the order that they appear in the piece.) The op-ed most definitely does not provide an argument to support Olsen's claim that the Billionaires Tax is "arguably unconstitutional." Olsen obliquely references the now-repudiated and widely ridiculed Macomber decision -- a Lochner-era Supreme Court case that I discuss at some length in today's Verdict column, and which I predicted almost three years ago could be revived by the Court's conservatives to block something exactly like Wyden's bill. The link that he provides, however, is to a blog post by a conservative law professor that completely misrepresents Macomber and that fails to note that the constitutional analysis in that case has been mocked for almost a century.
And that is essentially the entirety of Olsen's constitutional analysis: citing to an off-point blog post while mischaracterizing the original holding of Macomber. Ultimately, however, the constitutional analysis is a mere sideshow. It is essentially an obligatory "and it might be unconstitutional, too" kind of claim. What he is truly on about is that taxes are bad, and taxing rich people is especially bad.
After botching the constitutional analysis, for example, Olsen goes straight for the "they'll come for you next" argument, warning readers that "it will only be a matter of time before lawmakers apply the tax to ordinary Americans." As an initial matter, the entire point of the Billionaire Tax is to begin to change the reality that ordinary Americans already pay taxes while Billionaires do not. Earlier this year, I lauded a report from ProPublica that showed that the effective tax rates on income (measured accurately) for the richest billionaires runs from 3.27 percent for Elon Musk down to 0.10 percent for Warren Buffett.
Importantly, when I used the words "properly measured" in the paragraph above, I was referring precisely to the tax giveaway that Wyden is trying to close: the realization requirement. That is, whereas ordinary Americans pay taxes on income in the year that they earn the income, a person who does not make money from salaries/wages does not have to pay taxes on gains until those gains are "realized" through a cash sale. (There are a few other types of realization events beyond outright sales, but they are not relevant here.) So I will be taxed if my compensation comes in the form of a salary, but I will not be taxed (potentially forever) if I am able to take my compensation in appreciating assets.
This whole idea of trying to scare people into thinking, "Oh God, the Democrats will tax me next," is thus a deliberate distraction. The Billionaires Tax proposal in fact leaves much of the unfairness of the realization doctrine intact, but at least it peels back a little bit of it at the very top, causing billionaires to pay taxes just like the little people do.
Olsen, however, wants us to worry about our own unrealized assets:
Anyone who owns a house or has a retirement account has unrealized capital gains. Billionaires get all the attention, but the real money is in the hands of the broader public, as the collective value of real estate and mutual funds dwarfs what the nation’s uber-wealthy hold. The government would love to get 25 percent of your 401(k)’s annual rise, and our nation’s massive annual deficits and cumulative debt means it will need that money sooner rather than later.
Setting aside the complete fiscal ignorance that spawned that final clause, Olsen wants the relatively comfortable readers of The Post (who are likely to be in the minority of Americans with any real money in housing equity or retirement savings) to think that they are going to pay 25 percent of any annual gains on those assets in taxes. But even if "the government" were truly the insatiable money-grabbing monster of conservatives' fever dreams, a single-minded entity that would "love to get" your money, we have plenty of reason to be confident that we will never take the next step down the slippery slope and extend the Billionaires Tax to our 401(k) accounts and split-level Tudors.
Most importantly, this would be terrible politics. The very thing that motivates Olsen's pandering on this issue -- that our political system cowers in the face of suburban voters -- means that a Congress that is comfortable enough to force rich people to start to pay taxes would never touch tax benefits that are quite popular with masses of voters.
An anti-tax zealot once likened taxing the rich to the Holocaust, saying that going after the top one or two percent of earners was an example of the masses victimizing a tiny minority. That was obviously grotesque for reasons far too numerous to explain here (and most readers probably do not need me to do so, anyway, given how offensive that claim was). If there was some element buried inside that argument that was inoffensive, however, it was the observation that taxes on the rich are popular because most people are not rich. The rich have plenty of other ways to fight back, but homeowners and retirement savers have raw electoral power. "Congress could come for you next" is a favorite trope on the right, but I am honestly not worried that Democrats are going to force me to pay taxes on my IRA's on an annual basis.
But what if they did? The fact is that almost all of us will pay taxes on our retirement accounts, because unlike billionaires, we will eventually need to draw down those accounts. The delay is tax-valuable to us, but we do pay taxes at some point. Most billionaires do not. And guess what? Republicans also oppose collecting taxes on unrealized income at death, in response to Democrats' proposals to treat the transfer of property to heirs as a realization event. No dice, say conservatives. Can't tax it now, can't tax it later.
And houses? Congress not only has chosen not to repeal the realization requirement for home ownership, but for almost as long as there has been an income tax, it has fully exempted almost everyone's actual gains when they sell their homes. That is, even upon realization, people do not have to pay taxes on profits from selling their residences. (The exemption amounts are capped at $500k for married couples, but that covers all but the wealthiest of homeowners -- again demonstrating that Congress is fully capable of distinguishing between taxing wealthy people and leaving the middle and upper-middle classes alone.)
To put it slightly differently, if the Democratic Party really and truly wants to go after middle class people's assets, it has a strange way of showing it. And if it did suddenly decide to commit political suicide by targeting the upper-middle class, there are plenty of ways to do so, whether or not the Billionaires Tax is ever enacted. Olsen dutifully carries water for Elon Musk, who responded to Wyden's announcement by tweeting, "Eventually, they run out of other people’s money, and then they come for you." If "you" are Musk, then yes. Otherwise, it is all scaremongering, trying to get people to protect the rich by claiming false solidarity.
Yet this ridiculous sliippery slope argument is not Olsen's only attempt to prove that the Billionaires Tax "could harm everyone," saying that if taxing billionaires "sounds too good to be true, it’s because it is." (As an aside, it does not sound too good to be true. It sounds good, and it is, in fact, true. But do go on.)
What follows is the usual two-step defense of the realization requirement, beginning with the relative difficulty of determining the change in value of certain assets. It is true that some assets are more difficult to value than others -- rare art works versus stock portfolios, for example -- but Olsen assures us that it is "almost impossible" to determine what such assets would sell for in any given year.
As a distraction, Olsen adds that "[b]illionaires are precisely the people with the motive and the means to hire the best tax lawyers to fight the Internal Revenue Service at every step of the way, surely subjecting each tax return to excruciatingly long and expensive audits." That, however, is merely a warmed-over version of the argument noted above, that is, that rich people will be motivated to fight being taxed. But if the argument is that it is difficult to collect taxes in a principled way, simply because some people will push back, why is that an absolute barrier? There could of course be a tipping point at which we would spend more on enforcement than we would collect in revenues, but it is a rather bold categorical claim -- and an inadvertently revealing admission about Olsen's paymasters -- to say that we know for sure that the government will lose in a battle against billionaires every time. It might be worth recalling here that Republicans have gutted the IRS's budget to make that outcome more likely, but that is a different matter entirely.
But back to the valuation question. Yes, some assets are harder to assess than others. So that means that the only option is to give up entirely? Jurisdictions both conservative and liberal around the country rely on property taxes -- levies on those houses that Olsen is sure Democrats are going to subject to the income tax at the federal level -- and those property taxes are assessed on often unique properties. Do property tax systems have appeals processes? Yes. Is the outcome of the valuation process the Platonic ideal? No. Do we nonetheless collect taxes based on changing valuations every year for tens of millions of properties? Yes. Yes we do.
To be even more sarcastic than I have already been thus far: Sure, it would be impossible to create a workable system by which we could place values on the properties held by an estimated 700 people who would be subject to the Billionaires Tax. And this would be true because there currently are no methods available to assess such values, because none of these billionaires have any motivation to determine the values of the properties that they own for any other purpose. We would be writing on a completely blank slate. Yeesh.
Olsen's remaining argument is even more bizarre. He points out that the mirror image of unrealized gains is unrealized losses, and if the Democrats were to adopt a symmetric plan, then inevitably the government would have to issue refunds to billionaires in years in which the economy has tanked, because assets would lose value. So? "This would lead to some politically uncomfortable acts ... . No president will want to be in charge when their IRS has to give billions of dollars back to Warren Buffett or Bill Gates." (Their IRS?)
Hmmm. We have had a system for decades in which "tax carryovers" allow companies to use losses in bad years to offset gains in good years, which led to many companies in the early and middle years of the 2010's to pay zero taxes even in years when they were highly profitable. 2009's losses, for example, could offset 2013's gains, resulting in zero taxes in both years. Was that "politically uncomfortable"? A bit. Did it happen anyway, because the tax laws required it it happen? Of course. No president is going to have to hold a big check in front of Jeff Bezos to refund some of his previously paid taxes; and honestly, even if she or he did, it would be a matter of saying, "You paid $30 billion in taxes last year on your unrealized income, and this check partially offsets that, because your wealth went down. Fair is fair." (Symmetry is not even required in such a system, by the way, but that is too much of a side issue to discuss here.)
And that, ladies and gentlemen, is Olsen's case against the Billionaires Tax: The billionaires will not like it and will fight back. Valuation difficulties have no practical work-arounds. Refunds required by law are bad PR. If we tax billionaires, we'll tax regular people, too. And of course, it is all somehow unconstitutional.
As I noted above, it is usually not necessary or worthwhile to respond to an entire op-ed that was dashed off by one relatively obscure member of the chattering class. This one, however, was such a festival of nonsense that it was too tempting to pass up.
More importantly, if this is the best conservatives can do when it comes to pushing back against progressive taxes, Democrats are in a much better position than I ever would have thought they were.