Key Senate Democrat unveils proposal to tax the rich

Key Senate Democrat unveils proposal to tax the rich
© Aaron Schwartz

A key Senate Democrat on Thursday rolled out a proposal aimed at increasing the amount of taxes paid by the rich, as politicians in the party and left-leaning experts debate how best to get the wealthy to pay more in taxes.

Sen. Ron WydenRonald (Ron) Lee WydenUS ban on China tech giant faces uncertainty a month out Hillicon Valley: GOP lawmakers offer election security measure | FTC Dem worries government is 'captured' by Big Tech | Lawmakers condemn Apple over Hong Kong censorship Lawmakers condemn Apple, Activision Blizzard over censorship of Hong Kong protesters MORE (Ore.), the top Democrat on the tax-writing Senate Finance Committee, released a paper that calls for taxing ordinary income and capital gains at the same rates, and taxing certain investment gains of the wealthiest people annually.

ADVERTISEMENT

He proposes using the new revenue to ensure that people receive the full Social Security benefits to which they have been promised.

“My proposal ... provides a specific path for ensuring that millionaires and billionaires pay what they now owe," Wyden said at an event hosted by the Center for American Progress Action Fund. "And that revenue is used to save Social Security.”

The senator said that preliminary estimates have found that his proposal could raise between $1.5 trillion and $2 trillion over 10 years.

"That is enough to shore up Social Security almost into the 22nd Century," Wyden said.

Wyden first announced in April that he planned to put forward a proposal on taxing investment gains annually.

The release of the proposal on Thursday came hours before the third Democratic presidential debate. Democratic candidates have floated a number of different options for how to raise taxes on the rich, including changes to capital gains taxes.

Democratic presidential candidate Elizabeth WarrenElizabeth Ann WarrenZuckerberg launches public defense of Facebook as attacks mount Warren, Yang fight over automation divides experts Warren says making Israel aid conditional on settlement building is 'on the table' MORE also released a proposal on Thursday to raise taxes on investment income to fund Social Security. The Massachusetts senator's proposal would create a new 14.8 percent Social Security contribution requirement on investment income for individuals making more than $250,000 and families making more than $400,000.

If Democrats win back control of the Senate in 2020, Wyden would likely become the chairman of the Finance Committee, and he would want to play a key role in drafting tax legislation if a Democrat is elected president.

Wyden said that it's one thing to propose new taxes, and that new taxes will be debated on the campaign trail, but that job number one is to collect taxes that are already owed. He sees his proposal as a way to crack down on tax avoidance by the wealthy.

Currently, long-term capital gains on investments are taxed at lower rates than ordinary income such as wages, and capital gains are only taxed when investments are sold.

“The preferential tax treatment given to certain types of capital income from investments over ordinary income from wages creates unfairness in the tax code and encourages tax avoidance,” Wyden’s paper argues. “The preferences for capital income disproportionately benefit wealthy taxpayers, who receive much of their income from investments.”

Wyden’s proposal would tax all income at ordinary-income rates, regardless of the source of the income. The rate changes would apply to all taxpayers, but would be designed to ensure that middle-class taxpayers don’t see their taxes increase. Wyden is seeking feedback on what the tax rates and brackets should be and whether an exemption for a certain amount of taxpayers’ capital gains is a good way to ensure that the middle class don't pay more in taxes.

Taxpayers who have had more than $1 million in income or more than $10 million in applicable assets in three consecutive years would also be subject to accounting rules designed to prevent the deferral of taxation.

Those individuals, trusts and estates would have to annually pay taxes on their gains, or take a deduction for their losses, for each tradable asset they hold at the end of the year. The gains from nontradable assets would be subject to a lookback charge when the assets are sold and transferred, in an effort to reduce incentives for taxpayers to defer selling those assets.

Wyden is seeking feedback about how to design the lookback rule, as well as on how to design phase-in and transition rules to the anti-deferral rules.

Wyden’s proposal is designed to prevent middle-class families’ homes, farms and retirement accounts from being subject to anti-deferral accounting. The first $2 million of the value of taxpayers’ primary and secondary homes, the first $5 million of the value of taxpayers’ operating family farms, and the first $3 million of the value of taxpayers’ retirement and tax-preferred savings accounts would not count as applicable assets in determining whether a taxpayer is subject to the anti-deferral rules.

Retirement accounts wouldn’t be taxed under the new rules and would still be taxed as they are now.

- updated at 1:18 p.m.