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Proposed ‘Billionaire Tax’ Could Lead to More Charitable Giving, Experts Say

The Biden administration’s proposal to increase the minimum tax rate for the very wealthy to 20% could spur more charitable giving, philanthropy experts say, as the rich seek ways to avoid paying taxes on stocks that have substantially increased in value.

The so-called “billionaire” tax would apply to households worth more than $100 million. In addition to income, it would be levied on the increase in value of stocks and other liquid assets, which under current law aren’t taxed until they are sold. In other words, under current law if a wealthy investor never sells an asset that has increased in value, the investment gains are never taxed, for example, if the asset is passed on to heirs. 

The new law would create an incentive for the wealthy to donate assets before the increase could be counted as yearly taxable income, or to stay under the $100 million threshold, experts said. Nicolas Duquette, an economist and associate professor of public policy at University of Southern California, told Philanthropy Today a pending law change could lead stockholders to scramble to make donations under current, more advantageous tax laws. 

Billionaires currently pay an average federal individual income tax rate of 8.2%, which according to the White House Office of Management and Budget and the Council of Economic Advisers is much lower than the rate paid by the average American.  

The White House brief says the disparity is driven by how the tax code treats income from assets like stocks that increase in value over time. 

“When a middle-class American earns a dollar of wages, that dollar is taxed immediately. But when a billionaire makes a dollar because their stocks increase in value, that dollar is taxed at a preferred rate—if it’s ever taxed at all,” the report says.

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The tax law change would raise about $360 billion over 10 years, the White House said. It also promises a “historic” middle-class tax cut financed by the top earners while ensuring that no one making under $400,000 a year pays more in taxes. 

The wealthiest 400 families in the United States in 2018 had at least $2.1 billion in wealth, per the OMB. The Washington Post reported that, for example, the new law would mean Elon Musk would pay an additional $50 billion in taxes and Jeff Bezos another $35 billion. 

But a higher tax rate won’t automatically lead to more giving, experts said. The ultra-rich often already have complicated philanthropic giving plans in place, and some might see little or no tax benefit from making changes, they said.

 “It’s a fairly complex situation,” Marcus Owens, a partner at Loeb & Loeb and former director of the exempt organizations division of the IRS, told Philanthropy Today. “I don’t know that it’s possible to conclude what sort of philanthropic impact it would have on giving, if any.”

Jeremiah Doyle, a senior vice president at BNY Mellon who advises wealthy families, concurs.

“It’s too early to tell,” says Doyle. “We’ll find out later on if this thing looks like it’s getting close to having a possibility of actually being enacted.”

The Ultra-Millionaire Tax Act of 2021 is currently in the Senate Finance Committee.

Anne Stych

Anne Stych is a writer in Charlotte, North Carolina.