As Time Goes By

April 6, 2022

In 1942, Captain Louis Renault, commander of French troops in Casablanca, was “shocked, shocked” to find that gambling was going on at Rick’s Café Americain. As the Captain collected his winnings, he shut Rick down. While that might not sound like a promising start, the pair ultimately joined forces to help the Czech freedom fighter Victor Laszlo and his wife escape to Lisbon. As the Laszlos boarded the plane to safety, Renault shot the German Major Strasser and ordered police to “round up the usual suspects.” For his part, Rick predicted the whole adventure would be “the beginning of a beautiful friendship.”

Twenty-seven years later, Treasury Secretary Joseph Barr was shocked, shocked that 155 taxpayers making the equivalent of $1.7 million in today’s dollars had taken advantage of enough loopholes to pay no income tax. His response? Create an alternative minimum tax equal to 10% of the sum of certain preferences above $30,000, plus the taxpayers’ regular tax liability. (It would have been easier to just shoot someone.) But Barr’s story doesn’t have a happy ending. Congress didn’t index the exemption to inflation until 2013. So as time went by, millions of Americans wound up paying the millionaire’s tax. If you were a high-school principal married to an RN in a high-tax state like California or New York, you might have paid it yourself. (The 2017 tax act fixed the problem by raising the exemption to $500,000 for singles and $1 million for joint filers.)

Today, the White House is shocked, shocked to see that stocks sometimes go up. That means billionaires like Jeff Bezos can finance mansions and yachts by borrowing against their shares tax-free, rather than selling and paying tax on their gains. Now, the White House understands Congress won’t hike regular rates in an election year. And they know a Bernie Sanders-style wealth tax is a non-starter. So, last week, as part of their 2023 budget, they floated a “hybrid” tax on increases in wealth. Specifically, they proposed going all Will Smith on households worth $100 million or more, slapping them with a “Billionaire minimum tax” of 20% on their full income – including unrealized appreciation on their stock.

Let’s pretend for just a moment this new tax has a chance of passing. (It doesn’t – but the Laszlos weren’t supposed to make it out of Casablanca, either.) Do you see a happy ending? Or do you see inflation and bracket creep eroding those thresholds to the point where your kids wind up paying? And do you see the genius in calling it a “Billionaire” tax when it hits people worth just 10% of that amount? If so, you may be cynical enough for a career in Washington!

Meanwhile, some board-certified billionaires are feeling like the usual suspects at roundup time. Hedge fund manager Leon Cooperman, who drives a Hyundai to pick up lamb chops at Costco, says, “It’s dead on arrival, it’s not constitutional, and it makes no sense.” Grocery-store kingpin John Catsimatides is even saltier, fuming that, “If they don’t like the United States the way it is, I’m buying them a one-way ticket to Venezuela.”

The cable news crowd can debate the new proposal until they’re blue in the face. Meanwhile, here in the real world, millions face a looming reckoning. Remember how the 2017 tax act fixed the AMT by raising the threshold? That fix is scheduled to expire on January 1, 2026, meaning the tax will roar back to hit an estimated 6.5 million families. If you don’t already have a plan to make the most of your opportunities, now’s the time to make one. We promise it will be the start (or continuation) of a beautiful friendship!

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