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The Billionaire Income Tax - An Idea Whose Time Has Come

Former Managing Director of Ahmedabad Stock Exchange
Jan 18, 2022 5:39 AM 4 min read

US Senate Finance Chair Ron Wyden proposed a Billionaires' Income Tax as a way to offset President Joe Biden's social and infrastructure spending packages and to equalise the tax burden. According to his office, the first five years alone of the tax would bring in $346.2bn of revenue from about 700 American billionaires.

The tax proposal, should it pass, would have required US citizens with more than $1 billion in assets or $100 million in annual income (over three consecutive years) to pay a capital gains tax on assets that have appreciated in value and haven’t yet been sold. It is debatable whether the Billionaires' Tax will count as an income tax or a wealth tax.

The Wyden proposal would begin by imposing a one-time tax on all the gains that had accrued before the tax had been created. So, for example, Jeff Bezos would owe taxes on the appreciation of his unsold Amazon stock dating to its early days. It would be a massive tax bill for Bezos, for which Wyden would give him five years to pay up. After that, Wyden's plan would charge capital gains taxes on the subsequent annual appreciation, with different rules for different kinds of assets.

American billionaires from Jeff Bezos and Elon Musk to Warren Buffet and Michael Bloomberg, and almost all of America’s 25 richest people paid $0 or negative income tax in some years and a much lower tax rate than middle-class Americans in other years, an investigation of leaked Internal Revenue Service (IRS) data by ProPublica has found. For example, Bezos didn’t pay any income tax in 2007 and 2011; Musk paid $0 in federal income tax in 2018.

The most common ways for the billionaires to avoid or minimise tax bills are through various deductions - on such items as charitable donations and investment losses - and holding onto stocks and property that rise in value. Under current US laws, gains from these assets are not considered taxable income until they are sold. In 2011, Bezos reported a negative income due to investment losses. In fact, he even claimed and received a $4,000 tax credit for his children. Bezos’s stake in Amazon was worth $18bn in that year.

In comparison, middle-class American households headed by salary earners saw their net worth grow by about $65,000 on an average during the five-year period from 2014 to 2018. Because they are taxed on salaries, they ended up paying almost as much in income taxes over the same five-year period.

Billionaires can help save millions of children from starving, the director of the World Food Program (WFP) David Beasley recently said. "We're facing a perfect storm because of conflict, climate change and compounded by COVID. The number of people knocking on famine's door now is unprecedented – 42 million people," he said.

Because of this unfair distribution of profit, the uber-rich benefit more while the working class barely manages. In recent times, these wealth inequalities have become even more pronounced. According to recent estimates, eight people own as much wealth as 50% of the global population.

The number of billionaires in India stands at 140 in 2020. India has the third-highest number of billionaires in the world, after US and China, according to Forbes. India's 100 richest are collectively worth a record $775bn after adding $257 billion - a 50% gain - in the last one year.

"As per the information available with Central Board of Direct Taxes (CBDT), there is no legislative or administrative definition of the term billionaire under direct taxes. Wealth tax has been abolished with effect from 01.04.2016 and, therefore, CBDT does not any more capture information about complete wealth of an individual taxpayer," Finance Minister Nirmala Sitharaman said recently in a reply to the Rajya Sabha. Sharing official poverty numbers, the Minister said that as per the poverty estimates following the extant Tendulkar Committee methodology, the number of persons living below the poverty line in India was estimated as 27 crore (21.9%) in 2011-12.

India's total wealth is estimated at $12,833bn. It means, the 100 richest people in India own 6% of the nation's wealth. It may be prudent for India to also consider a similar Billionaires' Tax proposal, on lines of US plan, on these 100+ billionaires on their unrealised gains. A whopping $257bn wealth (equal to 10% of national GDP) accrued to these 100+ billionaires in just one year, but hardly any taxes were paid on such wealth gains.

The bottom line is that billionaires should pay a fair share in the aggregate national tax mop-up in order to fully fund the health, education, poverty alleviation and the infrastructure needs of the country.


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