It’s Time to Slap America’s Billionaires With a 100% Tax Bracket

The top US federal tax bracket for 2023 is 37%. If that seems high, the top rate in 2023 in Norway is 55.8%. But that’s nothing compared to the top US rate in 1944: a whopping 94%, which was applied on all income over $200,000.

That’s equivalent to $3.45 million in 2023 income. Such a rate would raise a cry so loud that even I can’t advocate for it. So let’s compromise by keeping the current rate structure but adding one at the very top: a 100% federal income tax and capital gains rate on all income over $1 billion, with a mark-to-market requirement for all gains above that threshold.

In other words, whether you made $1 billion in cash or $1 billion in appreciation of holdings, you’d owe 100% of everything over that billion-dollar mark. There would be no loopholes or caveats.

Myriad complexities undergird this proposal. If the current US tax code was printed, it would be just shy of 7,000 pages, the bulk of which address nuances and edge cases. Those pages don’t even include the supporting tomes of regulations and case law.

The tax proposed here would require a substantial policy effort, but lack of proper regulation ensuring billionaires pay their fair share isn’t owing to administrative unworkability. It’s purely due to lack of political will.

Data on the income of the highest earners is somewhat dated and generally isn’t made public. A trove of data was made available on high earners from 2013 through 2018, so we’ll work with that. Looking at income during that period, 11 earners made more than $1 billion per year on average. Microsoft co-founder Bill Gates topped the list at $2.85 billion per year, on average. The remaining names are ones you’d mostly recognize as the usual billionaire suspects.

Your initial reaction to the relative paucity of billionaire earners may be that a tax rate on such an elite group wouldn’t raise very much. And you’d be right—a 100% tax on income over $1 billion would only net about $6 billion per year from those 11 high earners.

Hiding behind these income numbers, though, are all those billionaires with massive unrealized gains on stock, bonds, and other security holdings. Unrealized gains simply refer to the increase in value of a holding that has not been sold or “realized” as taxable income.

As of 2021, the unrealized gains held by billionaires in the US was right around $2.7 trillion. Much of this would be composed of individual billionaires’ year-over-year gains in excess of $1 billion.

With a mark-to-market tax, individuals or entities are required to recognize gains and losses on their investments at the end of each tax year based on market values. In other words, it’s the difference between fair-market value of a held investment at the beginning and end of the year. Mark-to-market is an end-around to the unrealized gain problem—it effectively makes the end of the taxable year a realization event for purposes of taxes owed.

Thus, if the $1 billion in stock you hold at the beginning of the year increases in value to $2.5 billion, absent any additional information regarding your basis, you’d have $1.5 billion in appreciation. And with a 100% rate applied, you’d owe $500 million. The logic is that you can borrow against that appreciated stock and by any reasonable definition, you have $1.5 billion in income.

While applying a mark-to-market tax on 100% of gains and income above $1 billion wouldn’t immediately capture the unrealized $2.7 trillion of America’s billionaires, it would prevent that number from growing while putting a damper on their exploding relative wealth. As of this month, Elon Musk’s net worth in 2023 increased by $95.7 billion, and the 10 wealthiest billionaires saw an increase of just north of $345 billion.

SpaceX founder Elon Musk on Aug. 25, 2022 in Boca Chica Beach, Texas. Musk’s net worth has increased by more than $80 billion this year.

Photographer: Michael Gonzalez/Getty Images

If the year ended today, a mark-to-market tax rate of 100% would raise around $335 billion on this elite group alone.

An alternative proposal, which would be a giant step toward remediating wealth inequality, would apply a one-time mark-to-market tax on the $2.7 trillion in unrealized gains at the current ordinary tax rate—43.4%—paid in installments over 10 years.

This would raise approximately $1 trillion. The proposal falls short of offering a permanent solution, however. Absent other structural changes, America’s billionaires would immediately set about once again building their unrealized gain wealth.

In either case, such a targeted tax has one major benefit—it’s relatively easy to administer. As of 2023, there are 724 billionaires in the US. This is the highest number of any country by a large margin. Nonetheless, it’s a small enough number that each return could receive individualized and scrupulous attention by auditors.

Tax regimes that would be administratively unworkable at a larger scale can be applied when the total number of individuals effected is so low—and the market can absorb 724 individuals selling or borrowing against their interests to raise revenue to foot their tax bill.

Ultimately, from valuation of non-traded assets to the review of individual returns, the chief hurdle to a 100% rate isn’t administrative feasibility or its adequacy for the intended function of combating wealth inequality. It’s political salability. We’re a nation of temporarily embarrassed billionaires—many of us see a potential future version of ourselves in the wealth of Musk or Jeff Bezos.

There are more than 144 million US taxpayers, and the billionaire class numbers less than 750. Solutions to wealth inequality abound, but first, we must persuade a volunteer army of lower- and middle-class defenders to break rank.

Look for Leahey’s column on Bloomberg Tax, and follow him on Mastodon at @andrew@esq.social.