Dem
47
GOP
53
As we note in the previous item, Gavin Newsom opposes the California wealth tax. This is likely because: (1) He is trying to convince moderate 2028 Democratic presidential primary voters that he is not nearly as radical as he pretended to be these past 8 years and (2) He hopes some of the billionaires will toss very large chunks of spare change into his 2028 campaign pot.
On the other hand, he also wants lefty voters to vote for him despite his dumping on a ballot measure they really like. What's a candidate to do? Newsom, clever fellow that he is, has now proposed an alternative. Call it a new, improved alternative minimum tax. That tax, enacted in 1978, is a hideously complicated tax that is effectively a parallel tax system that hits people who use certain deductions or credits that allow millionaires and billionaires to pay less tax. What it does is negate some of the most odious loopholes—instead of doing the obvious thing, namely abolishing the loopholes in the first place. But that was politically impossible due to the objections of the millionaires and billionaires being targeted. Newsom's proposal is to require anyone earning $100 million or more to pay a certain minimum tax rate. It won't work. Neither would a national wealth tax of the kind proposed by Sen. Elizabeth Warren (D-MA).
The problem with Newsom's tax is that not a lot of people actually make $100 million/year. ProPublica discovered that only 400 Americans (one fifth of them hedge fund managers) make $110 million or more, so maybe a couple of hundred people would be caught by Newsom's tax. Only 11 people made $1 billion, generally from selling stock, which is taxed at about half the top rate for earned income. Taxing a couple of hundred people 15% of $100 million may feel satisfying, but it won't come close to raising enough money to pay for the Democrats' pet projects. A scheme that would generate much more revenue would be to go back to the Eisenhower-era top marginal tax rate of 91% and have it cut in at, say, an income of $10 million.
So why did Newsom make this proposal? Well, it makes him look like he wants to tax the rich without actually doing very much. Actual proposals that would matter are too complicated for the average voter to understand. He knows that.
What then? Many billionaires use the "buy, borrow, die" strategy. They buy stock that appreciates in value (rather than stock that pays high dividends). Then, using the stock as collateral, they borrow lots of money and live off it. Loans are not taxable income. When they die, there are no capital gains tax for their heirs due to a provision of the Internal revenue Code called the "stepped-up basis." Suppose someone buys some stock at $50 and it is worth $500 when they are dying. If the person sells the stock on his or her deathbed, there is a capital gains tax on the $450 profit. However, if they don't sell the stock, their heirs get it with a basis of $500. If they sell it immediately, there is no tax at all. Eliminating the stepped-up basis would prevent millionaires and billionaires from passing on fortunes to their kids, who didn't earn any of it. In addition, the estate tax exclusion could be reduced and the rates drastically increased.
Newsom did address this in his proposal. He also wants to put corporate tax rates back where they were in 2016 and close loopholes international corporations use such as assigning patents to subsidiaries in low-tax countries and then having those subsidiaries charge the mother company outrageous fees to use the patents, thus shifting income from the U.S. to the low-tax countries. (V)