The Build Back Better Act would raise taxes to pay for social spending programs. But the design of some of the tax increases may end up hurting private pensions, among other problems.
Congressional Democrats are reported to be weighing a special tax on the assets of billionaires to raise revenues to pay for their Build Back Better spending plan. There are two fundamental challenges to such a plan.
Congressional lawmakers are putting together a reconciliation bill to enact much of President Biden’s Build Back Better agenda. Many lawmakers including Senate Finance Committee Chair Ron Wyden (D-OR), however, want to make their own mark on the legislation.
Mark-to-market is not simple to implement, as it involves new administrative and compliance challenges for taxpayers. Mark-to-market levies tax on phantom income, requiring some taxpayers to engage in some degree of liquidation, ultimately suppressing incentives to save and invest. The limited tax revenues that could result from these proposals are not worth the risk.
Policymakers concerned about the current tax treatment of unrealized capital gains would be better off exploring policy solutions like consumption taxes rather than tried-and-failed strategies.
Whether you see the GameStop saga as a Robin Hood-style victory for the little guys or as a case of disruptive investor hysteria, it provides an interesting case study in just how badly the mark-to-market treatment of capital gains income could go awry.
The “Real Deal” would increase the tax burden on saving, investing, and working in the United States, and reduce the global competitiveness of the U.S. economy.
Elizabeth Warren released a detailed plan on how she would fund Medicare For All, proposing a wealth tax, financial transactions tax, mark-to-market taxation of capital gains income, and a country-by-county minimum tax, among other reforms.
Wyden’s “mark-to-market” proposal strives to subject capital gains to the same treatment as ordinary income. While the plan resolves the “lock in effect” issue and would make the tax code more progressive, it would increase the tax burden on savers and increase tax code complexity.