There’s been a lot of debate this week over President Biden’s latest budget plan, which includes a proposed tax on the unrealized gains of assets owned by billionaires. Sen. Elizabeth Warren and other progressives have been promoting this idea for years. They believe that the revenues earned from taxing the wealthy could be used to pay down our nation’s deficits and fund social programs. And their supporters believe it’s a long time coming.
“The proposal takes direct aim at the biggest inequity in the tax code — the fact that some of the wealthiest people in history pay lower taxes on their real incomes than middle-class Americans,” says Seth Hanlon, senior fellow, Center for American Progress. “Just as workers pay taxes with every paycheck, billionaires should pay taxes as their fortunes grow. This is a critical proposal that Democrats should get behind.”
I’m not sure if I agree with all of that. But I am sure of this: The wealth tax proposed by the president and Ms. Warren is a fantastic idea!
But wait … I’m a business owner. A right-leaning, fiscally conservative, low-tax, less-government guy. So why would I support such a proposal? It’s because I’m also a certified public accountant, that’s why! And I’ve got mouths to feed and expenses to pay. To me, this is a huge windfall! And on behalf of all my colleagues in the accounting industry, I say to those supporters of such a tax to go for it! Get it passed.
Because if it becomes legislation, a wealth tax will be the gift that keeps on giving … to accountants.
To understand why, you have to look at the details. Although the president has not been very forthcoming about how an unrealized gains tax would actually work in real life, we do have a good blueprint provided to us just this past October by Sen. Ron Wyden, the current chair of the Senate Finance Committee. Here are a few highlights:
• There would be a “mark-to-market” system created to track the gain (or loss) in the value of stock, dividends and other tradeable assets annually and then a tax would be calculated on the change in their market value each year.
• If there’s a loss, the taxpayer would have two options. He or she could carry that loss forward to offset future gains or carry it back for up to three years to offset prior gains (and get a tax refund) specifically on the taxes paid on these assets (not income taxes).
Still following? Here’s more juicy details.
• For non-tradeable assets, like art or real estate or similar valuables, there would be an “extra” charge for the gains generated by those assets but only when they’re sold. This “extra” charge would hopefully “even out” the gains or losses incurred over the lifetime of their holdings. The charge would take into consideration the taxes that should have been paid as the asset value increased over time, along with an interest rate calculated on those taxes.
• There would be special reporting obligations for partnerships, S-Corporations and pass-through entities as well as trusts, gifts, bequests and asset transfers.
• To add to all of the above math, there would be special phase-in rules so a taxpayer doesn’t get hit at once for all the gains he or she’s cumulatively earned but not realized.
There’s even more, but you get the idea by now.
If you’re one of the approximately 700-plus billionaires that would likely be eligible for this tax of course this would not be great. But if you’re an accountant? This is awesome! I mean: ka-ching, baby!
Given what I’ve shared above, just imagine the amount of work that we’ll have to do each year just to be in compliance! And there will likely be lots more in the years to come. We all know that once a tax starts it never goes away. And once the 700-plus billionaires get tapped (or they leave the country to start businesses and employ people elsewhere), it’s only a matter of time before the income and wealth threshold gets reduced to capture even more taxpayers, which of course will only increase the market of people needing our assistance. The future looks rosy for the accounting profession!
Look, I’ll still invest in the Elon Musks and Jeff Bezoses of the world. I still think that the billionaires in America like them create countless opportunities, jobs and wealth for all of us. But hey … if Mr. Biden and Ms. Warren and Mr. Wyden’s wealth tax ever happens, I’m definitely investing in H&R Block and I’ll be encouraging as many young people as possible to get accounting degrees, pass the CPA exam and join our profession.
The sky’s the limit and the future will look bright for accountants. A tax on unrealized gains may have its opponents. But as an accountant, I think it’s a fantastic idea.
• Gene Marks is a CPA and owner of The Marks Group, a technology and financial management consulting firm specializing in small- and medium-sized companies.
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