So what exactly is a billionaire’s tax – and how will it work?

The prospect of an increase in income tax and capital gains rates on the rich is fading, with the prospect of a new “billionaire tax” emerging. Democrats, meanwhile, are working on how to pay for a bill aimed at enclosing the Social Security.

According to the Wall Street Journal, the tax will apply to three years of income of at least $ 1 billion or more than $ 100 million.

Sen. of Oregon though. Ron Wyden, chair of the Senate Finance Committee, has been working on the issue for years, but it remains to be seen what will be proposed specifically for an spending bill that no Democratic defector can afford.

Here is what we know now:

It’s not an asset tax, Yellen says

The way it currently works, an event like the sale of an asset – or, tax-speaking, a “perception” – is when the Internal Revenue Service comes to assess a capital gains tax on a rich person’s portfolio.

This means that huge amounts of assets, such as public-traded securities or privately-held businesses, can be valuable and tax-free because the owners can sit on them and let the money grow.

Treasury Secretary Janet Yellen told CNN on Sunday that the proposal “would impose a tax on unrealistic capital gains on the liquid assets of extremely wealthy individuals, billionaires.”

“I wouldn’t call it a wealth tax, but it would help raise capital, which is a huge chunk of the income of rich people,” he added.

‘Mark to market approach’

Howard Gleckman, a senior fellow at the Tax Policy Center, explained that the proposal would calculate the profit on the asset paper – at a certain time around the end of the year – through the so-called “mark-to-market” approach. “You’re identifying the value of assets in the market,” he said.

Suppose the market price of a fictitious stock ends at 100 100 on January 1 and 130 130 on December 31. The tax is based on a $ 30 increase, Gleckman said.

The top federal capital gain rate is now 20%. Net investment income tax adds a further 3.8% for higher earners

According to recent research, corporate equities make up 40% of the wealth that flows to the top 0.01% of households in America. But in the so-called “buy, borrow, die” strategy, the super-rich can get loans in their portfolio as opposed to paper profits and then pass on the acclaimed assets.

Existing “step-up-in-basics” provisions help heirs reset “on a cost basis” when they receive assets, and this can greatly reduce tax bills in the event of future sales.

What resources are subject to this treatment?

If all types of value-added assets are for sale, capital gains may be subject to tax. But if there is no sale to consider, how can the taxpayer determine what the price might be at a certain point in time?

With publicly traded stocks, “that’s very easy to calculate,” Gleckman said. “Where it’s actually a privately held business ায়ন the valuation problem is a big problem,” he added later.

Applicable taxpayers will have to pay annual income tax on unrealistic profits and they will be able to avail exemptions for unrealistic losses from commercial property.

– 2019 proposal by Democratic Sen. Ron Wyden

Unless there is a change, mark-to-market accounting will only apply to publicly traded securities, says David Gamez, a professor at Indiana University Maureen School of Law who specializes in tax policy and has previously met with Wyden. Department.

“We know what they’re thinking and usually planning, but we don’t know the specific language,” he said.

To put it bluntly, Wyden – whose office could not immediately be reached for comment – has long spoken of imposing an annual tax on unrealistic profits.

According to Garrett Watson, senior policy analyst at the Tax Foundation, the question of which assets are subject to this annual tax is a major one – in addition to how the rule will deal with capital losses in a given year. Watson said some of what could happen ahead lies in Clue Wadden’s proposal for 2019 unrealistic profits.

“Applicable taxpayers will have to pay annual income tax on unrealistic profits and be able to get a rebate for unrealistic losses from business property,” according to the proposal. It said at the time that a “lookback charge” would apply when non-commercial assets were sold.

Is it possible?

Almost every country in the developed world has capital gains – following sales times, Watson said, with the Netherlands being a narrow exception.

“It’s an untested idea,” Watson says. “There are a lot of risks in terms of design and concept,” he said.

In the U.S., broker-dealer companies already have to do this type of accounting when they evaluate the value of their inventory when paying their taxes, Gleckman says. But “for individuals, this is a very new regime and it is going to raise a lot of questions,” he added.

“It’s not impossible to do, but it’s hard to do,” he said.

In the current tax-raising debate, the fuss over a reporting proposal that would report cash flow data to banks above a certain amount ($ 600 at first and now $ 10,000) shows that the possibility of a tax concept could dismiss people.

One line of reasoning for critics of the reporting proposal is that it would unnecessarily tie in between regular taxpayers and impose an administrative burden on financial institutions.

But the mark-to-market approach is an easy lift under the circumstances, Gamage says.

If lawmakers want this approach for a larger set of taxpayers, it would be “a huge administrative burden for the IRS,” he said. But if the rules only apply to billionaires ’short sleeves, it’s“ too small in the planning of things ”.

Gamage, a special adviser to the Obama era in the Treasury Department’s Office of Tax Policy from 2010 to 2012, is waiting for precise information. But in his view, “they are choosing the simplest version of this reform.”

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