Senate Democrats’ plan to extract hundreds of billions of dollars from the wealth of billionaires hit a major snag on Wednesday when Senator Joe Manchin III, Democrat of West Virginia, denounced it as divisive.
The billionaires tax, officially unveiled early Wednesday morning, may have died before the ink was dry on its 107-page text. Mr. Manchin, speaking with reporters, said, “I don’t like the connotation that we’re targeting different people.” People, he added, that “contributed to society” and “create a lot of jobs and invest a lot of money and give a lot to philanthropic pursuits.”
“It’s time that we all pull together and row together,” he said.
The proposed tax would almost certainly face court challenges, but given the blockade on more conventional tax rate increases imposed by Senator Kyrsten Sinema of Arizona, Democrats have few other options for financing their domestic agenda. Finance Committee aides expressed surprise at Mr. Manchin’s position, insisting that he had expressed at least mild support to the committee’s chairman, Senator Ron Wyden, Democrat of Oregon.
If the proposal can be enacted over Mr. Manchin’s concerns, billionaires would be taxed on the unrealized gains in the value of their liquid assets, such as stocks, bonds and cash, which can grow for years as vast capital stores that can be borrowed off to live virtually income tax free.
The tax would be levied on anyone with more than $1 billion in assets or more than $100 million in income for three consecutive years — which applies to about 700 people in the United States. Initially, the legislation would impose the capital gains tax — 23.8 percent — on the gain in value of billionaires’ tradable assets, based on the original price of those assets.
For people like the Facebook founder Mark Zuckerberg, the Amazon founder Jeff Bezos and the Tesla founder Elon Musk, that hit would be enormous, since the initial value of their horde of stocks was zero. They would have five years to pay that sum.
After that, those billionaires would face an annual capital gains tax on the increase in value of their tradable assets over the course of the year.
The legislation was also drafted to allow billionaires to continue their philanthropy without any tax penalty for money given away.
Democrats say the billionaires tax could be one of the most politically popular elements of their social safety net and climate change bill, which is expected to cost at least $1.5 trillion.
But implementation could be tricky. Billionaires have avoided taxation by paying themselves very low salaries while amassing fortunes in stocks and other assets. They then borrow off those assets to finance their lifestyles, rather than selling the assets and paying capital gains taxes.
The plan already faced resistance from some House Democrats who worry that it may not be feasible and could be vulnerable to legal and constitutional challenges. The Constitution gives Congress broad powers to impose taxes, but says “direct taxes” — a term without clear definition — should be apportioned among the states so that each state’s residents pay a share equal to the share of the state’s population.
The 16th Amendment clarified that income taxes do not have to be apportioned, and proponents of the billionaires tax have been careful to portray it as a tax on income, not wealth.