Democrats appear to be closing in on a deal to shaft the American people; the question now is, how hard?
Weekend talks with hold-out Sen. Joe Manchin, D-West Virginia, reportedly narrowed the gap on the budget reconciliation package, originally offered at $3.5 trillion. The final agreement is expected to be roughly half that number.
It’s still a lot of spending on entitlements that will be a burden on taxpayers for decades to come. Democrats are now turning their attention toward how to pay for it all.
Arizona Sen. Kyrsten Sinema, the other Democrat holding up passage, is wary of increasing income tax rates on corporations and individuals.
So negotiators are weighing a version of a wealth tax, which would raise a fair chunk of revenue while sating the progressives’ lust for punishing the rich.
House Speaker Nancy Pelosi said a wealth tax will be part of the funding equation.
What Democrats are considering is a tax on the unrealized capital gains of the super wealthy — an insidious and unfair levy that would be an administrative nightmare and quite likely unconstitutional.
The tax would apply to the growth of assets such as stocks, real estate, businesses, etc., that haven’t yet been sold.
Accounting for those gains every year — particularly in non-cash assets — would be extraordinarily complex and likely fuel tremendous growth in the tax bureaucracy.
While Democrats hope the tax will raise $200 billion over a decade, it is an inconsistent source of income, since deductions could also be taken for paper losses from an investment.
Another version of the proposal would apply the levy when the asset holder dies, at which time his or her heirs would be taxed on the growth in value from the time it was originally acquired. That would imperil a great number of long-held family-owned small businesses.
In its current form, the tax would apply only to those with $1 billion in assets, or have had least $100 million in income for three consecutive years.
Initially, it would impact a very small group — an estimated 700 taxpayers. Democrats hope that will make it seem like no big deal to most Americans.
But since it’s a brand new tax, its growth potential is enormous. Remember, when the current version of the federal income tax was adopted in 1909, it affected just 1% of earners, who paid a 1% rate. My how it’s grown. And this new tax is bound to creep upward as well.
As Politico notes, it’s a levy “lawmakers could revisit in the future. If Democrats can establish now that unrealized gains are fair game for the tax man, they could potentially expand that later to people who are merely millionaires.”
And ultimately to average working stiffs with a 401K plan. The assets included in the tax could easily expand as well to take in homes, vacation property, or the diamond broach grandma left to her favorite grandchild. Once the tax collector’s foot gets in the door, it opens ever wider.
The biggest obstacle the idea faces is the Constitution. The 16th Amendment, which authorized the current version of the income tax, gives Congress the power “to lay and collect taxes on incomes.”
How Democrats intend to define unrealized gains as income, when no money has been received from them, remains to be seen. But if the tax is struck down by the courts, America would have the spending without the anticipated revenue to pay for it. Guess who will pick up the tab then?
If this tax isn’t stopped now, it’s inevitable, based on past experience, that more Americans than not will end up paying it.
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