Mone of the highest earners in the United States, including Elon Musk, Jeff Bezos, Larry Ellison and others, created millions of new jobs, struck hundreds of thousands of new millionaires and literally improved life on earth .

But no matter all that. They’ve made a lot of money, so they’re bad by default.

That’s the attitude, at least, of some progressive lawmakers like Elizabeth Warren and Alexandria Ocasio-Cortex (AOC), who wore a famous dress to the Met Gala with “Tax the Rich” on it. Slamming billionaires and “the 1%” is now haute couture.

The latest iteration of this type of thinking is President Joe Biden’s “Billionaire Minimum Income Tax” proposal, which is a misnomer since it would apply to households worth $100 million and above. The proposal is likely dead on arrival as it lacks the votes in Congress, but in its current form it would levy a minimum tax of 20% on all income, including not only realized capital gains, but unrealized capital gains.

It’s a very big deal. Not to insult anyone’s intelligence, but unrealized capital gains are those you’ve made on a property you haven’t sold yet. They only exist on paper. The asset does not have to be an investment in stocks, bonds or bitcoins. It could be a property you own or the house you live in.

Homes are subject to capital gains tax, just like stocks

Let’s say you bought a house for $500,000 ten years ago and it’s now appraised at $2 million. Under Biden’s plan, you would be asked to pay Uncle Sam 20% on the winnings, even if you had no intention of selling your house.

Now imagine the housing market crashing and the value of your home plummeting back to $500,000. Do you think the IRS would refund the taxes it has already collected from you?

Some readers might point out that Biden’s plan only targets the very wealthy (UHNWI). The truth is, it doesn’t take as much as you think to be in the top 1%. According to SmartAsset’s analysis of IRS and Bureau of Labor Statistics (BLS) data, an American family only needs to earn $597,815 be considered a member of the top 1% nationally.

Risky stock market, as well as 401(K)S and other retirement plans

Let’s try to predict the unintended consequences of an unrealized capital gains tax by focusing on the top UHNWIs – the Elon Musks and Mark Zuckerbergs.

Much of their wealth is tied to the shares they own in companies they run or helped found, and in many cases those shares have appreciated significantly over time. Again, under Biden’s plan, they would be required to pay a minimum 20% “income” tax on that appreciation.

Below are an economist’s estimates of what the 10 richest Americans should owe on their unrealized capital gains alone. A total of $215 billion could be raised over nine years, with Musk paying the most at $50 billion.

Tax owed by top 10 billionaires under White House plan
Minimum tax of 20% on unrealized gains, in billions, payable in nine years
Richness Stock Wealth Estimated taxable gains Tax due
Elon Musk $256 $250 $250 $50
Jeff Bezos $190 $174 $174 $35
Bill Gates $133 $76 $54 $11
warren buffet $130 $129 $129 $26
Larry Page $126 $111 $111 $22
Sergey Brin $120 $105 $105 $21
Steve Ballmer $106 $100 $50 $10
larry ellison $102 $84 $84 $17
Mark Zuckerberg $84 $81 $81 $16
Jim Walton $65 $49 $36 $7
TOTAL $1,312 $1,159 $1,074 $215

Data as of March 26, 2022. Tax held includes only taxes on the existing stock of unrealized capital gains;
it excludes tax held on future income and gains.
Source: Bloomberg Billionaire Index, Gabriel Zucman, US Global Investors

But how would the Tesla chief cover his tax liability? Sell ​​stocks, of course. Many, many shares.

If you recall, Musk sold about $16 billion worth of Tesla stock late last year after polling his nearly 80 million Twitter followers if he should. The market doesn’t seem to like that. Between Nov. 8 and Dec. 28, when Musk was selling, Tesla stock fell 11%. During the same period, the S&P 500 rose 2%.

Remember, it was “only” $16 billion. What do you think would happen if he were to sell $50 billion worth of Tesla stock?

You can see how this could be a huge risk for everyday investors. Tesla, Amazon, Microsoft and other big companies make up a large percentage of many Americans’ 401(k)s and retirement funds, and those could take a huge hit if founders and high-earning executives were to dump of their actions.

The ‘billionaire tax’ is just the latest in a long line of envy-driven policies

Many critics like Elizabeth Warren and AOC often say billionaires aren’t paying their “fair share.” On the contrary, billionaires are subject to a higher personal income tax rate than other taxpayers, and they are responsible for paying the vast majority of total income tax revenues.

In 2018, the most recent year for tax data, the top 1% in the United States paid $0.40 for every dollar the IRS collected in personal income taxes. The bottom 50%, meanwhile, paid $0.03.

(By the way, 2018 was the first year under President Donald Trump’s Tax Cuts and Jobs Act, which was initially criticized for favoring high incomes. In reality, those incomes ended by paying a bigger percentage of total U.S. income tax revenue than ever before.)

And then there are the tax rates. According to the Tax Foundation, the top 1% paid an average individual rate of 25.4%, more than seven times the rate paid by the bottom 50%.

None of this to denigrate anyone. These are simply facts.

I think Biden’s tax regime is just the latest in a long line of envy-driven policies and legislation. If passed, it would serve as a tax on success and could even discourage investment.

Biden’s executive order on cryptocurrency regulation could potentially be constructive for the emerging industry. Find out why in by clicking here!

Initially published by US Global Investors on March 31, 2022.

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Holdings may change daily. Holdings are reported at the end of the most recent quarter. The following securities mentioned in the article were held by one or more accounts managed by US Global Investors as of 12/31/2021: Tesla Inc., Amazon.com Inc.

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