By JASON FURMAN
The White House
On March 28, President Biden released his FY23 budget, which reflects three important values: fiscal responsibility, safety and security at home and abroad and a commitment to building a better America.
The budget shows how the strongest economic growth in nearly 40 years, powered by the American Rescue Plan, has put the deficit on track to drop by more than $1.3 trillion this year – the largest-ever one-year decline.
Through a new Billionaire Minimum Income Tax and other measures, budget policies will build on this progress and reduce deficits by a total of over $1 trillion over the next decade. The budget helps keep our communities safe by putting more cops on the beat for community policing, fighting gun crime and investing in crime prevention and community violence interventions. It makes one of the largest investments in our national security in U.S. history, strengthening our military and leveraging our renewed strength at home to meet pressing global challenges. And it makes other critical investments to help build a better America – cutting costs for families and advancing the bipartisan unity agenda the president laid out in his State of the Union address.
President Biden’s Billionaire Minimum Income Tax, which the White House announced Monday as part of its 2023 budget, is a serious tax-reform proposal. By proposing a large broadening of the tax base, which would raise revenue in a fair and efficient manner from high-income households, this plan could solve many of the problems that have bedeviled earlier approaches to taxing the income from wealth.
Currently taxes are collected on capital gains only when an asset is sold, not when an asset increases in value. This matches the payment of taxes with the cash that is generated to pay those taxes. But waiting to tax until gains are realized through the sale of an asset has three major disadvantages. First, linking taxation to realization encourages people to hold on to assets. These gains escape taxation at death, which turbocharges the incentive not to sell and prevents capital from flowing freely to those who can make the best use of it.
Second, taxing gains when they are realized is unfair because it allows two people with similar income or wealth to be taxed at different rates for arbitrary reasons. For example, if you hold stocks that appreciate, they will be taxed less than similar stocks that do not appreciate but do pay a dividend.
Finally, taxing only realized gains narrows the tax base and requires higher federal tax rates and more kinds of taxes to meet revenue goals.
Jason Furman is a former chairman of the White House Council of Economic Advisers.