There’s a quiet competition among congressional Democrats to see who can position themselves as the champion of higher taxes on the wealthy.
While such proposals from 2020 contenders Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) have captured headlines and the hearts of activists during the Democratic presidential primary campaign, others, including a key Senate Democrat, have been quietly crafting an alternative that would achieve the same result while potentially avoiding the expected legal and political pitfalls.
Senate Finance Committee ranking member Ron Wyden (D-Ore.) and his staff have begun working on their own legislation that would expand capital gains taxes to levy an annual tax on the unrealized investment gains of wealthier individuals. Democratic tax policy experts tracking Wyden’s endeavor—known as mark-to-market—see it as a table-setting exercise in case Democrats win the White House and the Senate next year.
While polling for the Warren and Sanders wealth taxes has shown strong initial support, doubts exist over whether that can hold up under further scrutiny or attack from Republicans in a general election. That has fueled speculation from observers that proposals from Wyden or other Democrats could be the actual blueprint for a “wealth tax.”
“I think it’s so hard to predict political viability that it’s worth working on multiple options,” said Jason Furman, former Council of Economic Advisers chairman in the Obama administration.
It remains to be seen whether a wealth tax that’s popular on the campaign trail could become law, given a narrow margin in the Senate. Former Democratic tax policy aides also said drafting a tax like Warren’s, which would tax maintained wealth, could take more than a year.
Several Democratic senators asked about the wealth tax proposals from Warren and Sanders worried about whether the idea was realistic. They also feared that promising a tax riddled with constitutional questions could set them up for failure.
The Constitution says the federal government can’t “direct taxes,” except for income tax, without distributing the money among the states according to population. Warren’s plan would use the revenue from a wealth tax for federal programs like Medicare for All.
“I’m concerned with that,” said Sen. Doug Jones (D-Ala.), a potential swing vote if he navigates a tough re-election battle. “I haven’t studied all the various proposals because I don’t know how realistic those have in making it into law. But yes, I have a concern about that for sure.”
Sen. Jon Tester (D-Mont.) said he believed there were easier routes to go.
“It really depends on how it’s structured and what it applies to and all that stuff,” Tester said. “I think that there’s lower hanging fruit than that to bring in revenue, myself, but they’re going to do what they’re going to do. They’re on the trail. They’re trying to get people excited about their candidacy.”
The Senate Budget Committee, where Sanders holds the top minority slot, and Sanders’s presidential campaign didn’t return requests for comment.
Saloni Sharma, spokesperson for Warren’s campaign, pushed back on the notion that a wealth tax might have trouble gaining traction in the Senate.
“It is extraordinarily popular with Democrats, Republicans, and Independents, and it will fund big investments in education that will boost our economy and give millions of families more financial security,” she said in an email.
However, multiple Democratic senators—Cory Booker (N.J.) and Michael Bennet (Colo.)—endorsed mark-to-market while running for president, and Booker criticized a Warren-Sanders-style wealth tax as unrealistic.
“I think that our ideas are starting to take root and those are some smart people,” Wyden said, when asked if his proposal was picking up momentum.
Legal Uncertainty Could Create a Policy Vacuum
Wyden’s proposal may not face the same constitutional questions because mark-to-market would be intended as an increase on capital gains income. It would look more like an existing tax under the existing income tax code.
“Constitutional uncertainty with respect to a mark-to-market income tax is more muted,” Daniel Hemel, an assistant professor of law at the University of Chicago and former visiting counsel for the Joint Committee of Taxation, wrote in a December 2019 essay for National Tax Journal.
Several other tax law scholars across the political spectrum have raised doubts about wealth tax constitutionality, but Sanders and Warren cite others that back it. Warren released her plan alongside letters from constitutional law experts who defended it.
A mark-to-market approach might be seen as safer legal territory because it aims to expand existing capital gains taxes on stocks and bond gains to normal income levels, regardless of whether the assets were sold or not.
That broadening of an existing tax, rather than wholesale creation of a new one, may give Wyden’s approach a leg up—though he also wants to apply the tax to non-tradeable assets like business equity, real estate, or collectibles, but as a retroactive ‘lookback’ tax on the annual change in value of those assets upon sale. The tax on the rise in market prices would only apply to those with $1 million or more in annual income or $10 million or more in combined assets for three consecutive years.
Wyden’s approach also has its skeptics.
“There’s a lot of wealth out there that just isn’t publicly traded, daily-priced wealth,” said Doug Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office. “This is an invitation for litigation, and invitation for huge disputes over the valuation that will last forever.”
Added Holtz-Eakin, who spoke shortly after Major League Baseball’s sign-stealing scandal, “So what are the Astros worth today versus what they were worth two weeks ago? You’d have to answer that question. It’s insane.”
More Mark-to-Market Entrants
Though Wyden proposed mark-to-market first, he’s not the only Democrat in Congress working to tax unrealized gains. Rep. Jan Schakowsky (D-Ill.), a member of the House Democratic leadership, has begun drafting her own mark-to-market legislation—and is courting a high-profile co-sponsorship from Sanders endorser Rep. Alexandria Ocasio-Cortez (D-N.Y.).
The pair’s offices have negotiated on the bill, but Ocasio-Cortez has asked for a top marginal tax rate of 72% before signing off. Schakowsky would rather the top bracket end up at 59%, a 20 percentage point increase from the current top bracket.
“It hasn’t been at the forefront of our priorities—I know she continues to work on it—but we want to get to 70 percent,” or above for the top marginal income tax rate, Ocasio-Cortez told Bloomberg Tax.
Wyden has a few advantages his House colleagues don’t: a staff specialized in tax policy, seniority on a tax-writing committee where the bill would have to move through before it could become law, and a white paperreleased last year outlining the broad strokes of his vision for the new tax structure.
Wyden hopes his idea will be ready for the next Congress.
“We’re going to be ready, when we get these issues answered,” he said.
“I would say that people really wanting to study where to go with this might look at Ron Wyden’s white paper,” said Janice Mays, a managing director for PwC’s Washington national tax services and former Democratic chief counsel and staff director for the House Ways and Means Committee. “I think that has potentiality of maybe becoming law one day.”
(Michael Bloomberg also is seeking the Democratic presidential nomination. Bloomberg Tax is operated by entities controlled by Bloomberg.)