UGGGHHH Wyden’s Wealth Tax Plan

Senator Wyden (OR) is planning to introduce a bill to tax the assets (wealth) of billionaires.

The basic premise is this: wealthy individuals have a lot of their wealth in their assets, so to pull out equity from those assets without selling, they will take loans against them.

These loans are not subject to tax; think about when you refinance a house - that extra cash you pull out from the growth of equity in your home, is non-taxable.

Senator Wyden’s plan is to tax the change in value of these assets, year over year. So every year that the assets go up in value, they are taxed on this increase in Fair Market Value (FMV). In the years the assets go down in FMV, they are able to use that loss against the three prior years of income.

Senator Whitehouse, another sponsor of the bill stated:

“Our legislation will level the playing field by closing tax loopholes to ensure the highest earners pay their fair share in taxes.”

My problem with that statement is that what billionaires are currently doing by loaning against the value of their assets is not a loophole, it's just part of the tax code. Non-billionaires can take advantage of it too. Heck, I had a client get a bank loan against stock they owned from a prior employer.

Another issue that arises is exactly how the value of these assets will be determined; you know as well as I do that wealthy individuals will hire a team of professionals to find ways to mitigate this.

In my opinion, there are other ways tax rates for the wealthy could be raised (such as having capital gains taxed at ordinary income tax rates over a certain amount) without trying to tax the change in the FMV of assets.