Democrats unveil billionaire’s tax on unrealized capital gains
Yahoo Finance’s Denitsa Teskova breaks down Democrats new proposal to tax the wealthiest Americans.
Video transcript
JARED BLIKRE: Well, time to turn our attention to taxes, where we have a new proposal by Democratic lawmakers to tax unrealized capital gains, which would mean if you're sitting on a bunch of Bitcoin profits right now and you don't sell, you would have to pay taxes on those by the end of the year. Here to break it down for us is Yahoo Finance's Denitsa Tsekova. And I just gave a little bit of a recap. I think that's true. But you fill us in on the details here, Denitsa.
DENITSA TSEKOVA: Yeah, that's true. Only it's not going to be that year. If it's implemented, it's going to be next year. But pretty much, that's the case. So Senator Ron Wyden introduced this new tax proposal. It's called the Billionaire's Income Tax, and proposes taxing unrealized capital gains similar to other types of income, like wages, which is really a major change to the tax code. That's something that's not happening now,
It's going to affect a very small fraction of taxpayers. We're talking 700 taxpayers, according to the text of the proposals. And this is really people that have more than $1 billion in assets already or their income is above $100 million in annual income for three consecutive years.
So this is going against the capital gains tax deferral. There have been proposals like this in the past. But the idea is that other income like wages-- taxes are paid on it's regularly, either monthly or quarterly or annually, while investors pay tax and capital gains only when they're realized or sold. So this type of proposal is trying to tax them and trying to go against things like--
Deferring capital gains allows Americans to earn returns on untaxed money, used or untaxed gains as collateral. And it's really high-income individuals that are going to be affected because the top 1% around 40% of their income comes from capital gains, while for the bottom 80%, it's a really small fraction. It's like 3%.
- And Denits, the way I understand it, the way they look at this tax is a current value of tradable assets, such as stocks and bonds would be calculated every year. So why don't they look at real estate as well? And every great rule has a way around it. So isn't there a way to sort of transfer this wealth to, let's say, children or grandchildren to avoid this?
JARED BLIKRE: Yes, so there is different treatment to stocks and real estate. This proposal will treat stocks with an annual tax on the gain in the value of the asset. And this will start in 2022. Of course, this will apply to unrealized losses, which could be carried to offset some of the gains for up to three years.
But then, obviously, with real estate or business interest, such annual tax is very complicated to implement because such assets are harder to value on annual basis. So they would not be taxed each year. They would be rather subject to capital gains when sold or transferred. And there will be an interest charge that will approximate how much the tax would be owed if they had to pay it annually each year.
But it's important to say that this is just the proposal. There are many proposals that have been facing a lot of opposition. This is one of them. They're trying to introduce this as part of the reconciliation bill. So they need each and every Democrat to support that proposal. And we've already heard some Democratic members being against it. So we're yet to see what happens with that proposal.
JARED BLIKRE: A little bit of breaking news here, Denitsa. Just got a tweet from Jake Sherman, NBC News. "Because of Senator Joe Manchin's opposition, the Dem leadership and White House sources tell us that the billionaire tax is all but dead." Yahoo Finance's Denitsa Tsekova, thank you for joining us today.
