The Billionaire Income Tax, Oversight of Overseas Crypto Mining, and the Reconciliation Bill

Tax Policy:

October 25: Democrats craft billionaire tax with deal in reach

Democrats are mulling a historic tax on the nation's wealthiest as they attempt to find common ground on Biden's plan. Senate negotiators homing in on a proposal to tax billionaires.

Democratic Senate negotiators are homing in on a final proposal to tax the nation's wealthiest individuals and families as a principal source of revenue for a major human infrastructure spending bill. "The Billionaires Income Tax is about fairness and showing the American people taxes aren't mandatory for them and optional for the wealthiest people in the country," Senator Wyden said. “No working person in this country thinks it’s right that billionaires can pay no taxes for years on end, and sometimes never at all.”

Senate Democrats initially wanted to raise revenue to pay for their budget reconciliation package by raising the corporate tax rate and marginal income tax rates on wealthy Americans in the top income tax bracket. Plans to raise the corporate tax rate and marginal income tax rates were shelved because of opposition from. Sen. Joe Manchin said Monday that he believed Democrats "Should" be able to get a deal.

October 25: Proposed Tax on Billionaires Raises Question: What’s Income?

Democrats are homing in on unrealized capital gains raises as a way to help fund their social spending bill. To squeeze more money from the very wealthy, they are looking toward a change in the tax code that would reinvent how the government taxes investments — at least for the few hundred richest families — and lean against the accumulation of enormous fortunes in the future.

Treasury Secretary Janet Yellen said in an appearance Sunday on CNN, “It would help get at capital gains, which are an extraordinarily large part of the incomes of the wealthiest individuals, and right now escape taxation.”

In effect, a person can accrue capital gains indefinitely, on a vast scale, while owing no tax other than on dividends or other cash distributions from those assets. The average income tax rate for all Americans in 2018, without that capital gains adjustment, was 13 percent, and it was 25 percent among the top 1 percent of earners.

That idea, embraced by Elizabeth Warren and Bernie Sanders in their campaigns for the presidency, would require the very wealthy to pay some small percentage of their net worth each year. Senator Warren advocated a 3 percent tax for billionaires, for example. The Wyden plan, by contrast, would tax only the unrealized gain a billionaire family had - but the long-term capital gains rate is 20 percent. For assets with modest returns, the math of those two tax systems would work out similarly. But the new approach would cause more volatile swings in the money a rich family owes and the refunds it receives each year as asset prices move up and down.

Kyle Pomerleau, a senior fellow at the American Enterprise Institute, said the approach would be better than a wealth tax at taxing the extraordinary returns investors receive because of what is known as economic rents. "What the wealth tax is failing to tax are 'rents,' or supernormal returns - the returns to luck, market power, a good idea," Mr. Pomerleau said.

Notably, leading Democrats are on different pages on whether to think of the Wyden billionaires' tax as equivalent to a wealth tax. On CNN on Sunday, House Speaker Nancy Pelosi said, "We probably will have a wealth tax," while Ms. Yellen said later on the same show that "It's not a wealth tax, but a tax on unrealized capital gains of exceptionally wealthy individuals."

October 21: Democrats scramble to reach deal on taxes

Key Democrats are acknowledging they may have to drop proposals to raise tax rates, due to opposition from Sen. Kyrsten Sinema (D-Ariz.). Democrats are looking at other options for financing their spending measure focused on wealthy individuals and corporations, but those have their own challenges as well. Democrats are working to pass legislation that includes a number of spending provisions and tax cuts aimed at strengthening the social safety net and combating climate change.

Biden and House Democrats have both proposed financing the package in part through increases to the corporate tax rate, the top individual income tax rate, and the top capital gains rate. One alternative to raising rates that Democrats are looking at is taxing billionaires' unrealized capital gains annually, an idea that has been championed for several years by the Senate Finance Committee Chairman. "Anytime you get into stuff that's not proven in the tax code, it becomes a bit dangerous," said Sen. Jon Tester (D-Mont.). Another tax idea receiving renewed attention is to impose a minimum tax on large corporations' profits as they are reported on financial statements.

Some of the revenue-raising ideas that Democrats had already been strongly considering for the spending package do not involve increasing tax rates but have nonetheless generated pushback. As Democrats consider alternative revenue-raising options to raising tax rates, some lawmakers are warning them against reviving proposals that they find problematic.

Reconciliation Bill:

October 25: Democrats Negotiate Tax, Healthcare Provisions as Biden Seeks Deal This Week

Democrats are sprinting to wrap up negotiations over their social-spending and climate bill, hoping by this weekend to resolve disagreements on issues including tax policy and healthcare. Senate Majority Leader Chuck Schumer (D., N.Y.) said Monday there were three to four open issues. Lawmakers and aides said major policy areas, including the tax increases to pay for the package, Medicare and Medicaid provisions, and a paid leave program, remain unresolved. The bill, initially drafted at $3.5 trillion, is now expected to cost between $1.5 trillion and $2 trillion.

Top Democrats want to secure an agreement this week to score a win on climate legislation before President Biden heads to a meeting of Group of 20 leaders in Rome this weekend and a climate summit in Glasgow, Scotland, next week.

Democrats have been looking to find new ways to pay for the package's spending after centrist Sen. Kyrsten Sinema signaled her opposition to increasing marginal tax rates on corporations, capital gains, or individuals. With unified Republican opposition to their spending and tax plans, Democrats can't afford to lose a single vote in the 50-50 Senate and can lose only three in the House.

Senator Manchin said on Monday that he could support the new tax on billionaires' assets and a minimum corporate tax. “I support basically everyone paying their fair share of taxes, how you get to it, you know, we all have a different approach to that as far as taxation,” he said.

House Speaker Nancy Pelosi (D., Calif.) said Sunday that she expected the tax on billionaires’ assets would be in the final agreement. She said it would likely generate somewhere between $200 billion and $250 billion in revenue over 10 years but that Democrats would be able to find other ways to pay for the bill’s cost. She said she expected an agreement reflecting a consensus of all 50 senators in the Democratic caucus on the tax and revenue portion of the bill to emerge early this week.

The package is expected to include universal prekindergarten for 3- and 4-year-olds, subsidized child care, an expansion of beefed-up Affordable Care Act subsidies for three years, and tax incentives for people and companies to reduce carbon emissions, according to lawmakers and aides.

Crypto News:
October 25: Rand Paul questioning if crypto could become world reserve currency

Sen. Rand Paul (R- Kentucky) in a new interview questioned whether cryptocurrency could replace the dollar as the reserve currency of the world, as it continues to gain traction around the world.  "I've started to question now whether or not cryptocurrency could actually become the reserve currency of the world as more and more people lose confidence in government," Paul said in an interview on "Axios on HBO" that aired Sunday.

Paul said cryptocurrency is currently bigger than he ever expected it to become back in 2015. "I've been amazed at the growth of it and I've always been, you know, more a person who believed that our currency should be backed by something of real value like gold or silver or commodities, and always was wondering well crypto is not backed by anything either," Paul said. "But here's what I've started to believe now is that the government currencies are so unreliable, they're also fiat currencies, they're not backed by anything. The dollar has been more stable than most other countries and so it is the reserve currency," he added.

Asked how concerned he is about illegal uses of cryptocurrency and if there should be more regulation of the digital currency, Paul pointed to government oversight of private bank accounts. 

A bipartisan pair of senators introduced a bill last month that aims to increase oversight of cryptocurrency mining overseas. The legislation would direct the Treasury Department to write a report on how countries are using and mining cryptocurrency and how much has been mined since 2016 in the U.S. and other countries, then submit that report to Congress.

For Fun:

October 25: Mattress Mack to receive $35.6M payout if Astros win World Series

Gallery Furniture owner Jim “Mattress Mack” McIngvale will receive a historic $35.6 million payout if the Houston Astros win the World Series, according to a report by Forbes.

According to Forbes, McIngvale bet $3.25 million on the Astros to win the World Series at four separate sportsbooks, including a $2 million bet on the William Hill app, in June 2021.

If the Astros win the World Series, McIngvale will receive a $35.6 million payout, of which $22 million from the William Hill bet would reportedly be the largest single payout on a bet in U.S. history, Forbes reports according to the Action Network.

McIngvale’s bets on the Astros offset the financial loss from his Gallery Furniture promotion, which he estimates would cost him $20 million on mattress rebates. Should the Astros win the World Series, McIngvale would net $15.6 million after fulfilling his Gallery Furniture promotion.