The progressive Democratic New York lawmakers and activists are working on a a new form of capital gain tax as a part of their ''Make Billionaires Pay'' campaign.
It will apply to New Yorkers having USD 1 billion or more in assets. Sponsors of the proposed new legislation estimated it would raise USD 5.5 billion a year in taxes. The fresh capital injection would be used for a new unemployment insurance fund for those affected by the health crisis.
The New York state has been struggling financially with a deficit starting at a USD 13 billion and ongoing cost cuts. Therefore, many lawmakers are lobbying for raising revenues from the rich rather than cut government services.
Rep. Alexandria Ocasio-Cortez, D-N.Y., one of the new tax supporters, said last week that it is time to stop protecting the ultra-rich and focus on the middle-class families instead.
What is new about the new tax? It is a kind of mark-to-market tax on unrealized capital gains. Under the current legislation, taxpayers pay capital gain tax on assets only when they sell.
The proposed new rule would tax any gain in value for an asset during the year, regardless of whether it is sold or not. In New York, they tax capital gains at the same rate as ordinary income, so the rate would be 8.8%.
For instance, if Bloomberg LP, owned by the former Democratic presidential hopeful, Mike Bloomberg, gained USD 5 billion in 2020, he would have to nearly USD 440 million in taxes.
In case their assets lose value for some reason, the billionaires would be able to ''carry the loss forward'' indefinitely to reduce taxes in the future.
According to the progressive group Americans for Tax Fairness, New York is home to 119 billionaires whose fortunes increased to USD 600 billion from USD 521 billion in March, when the financial markets reached their lowest level for the year due to pandemic.
New York Governor Andrew Cuomo disagreed with the new proposal, arguing that it would simply force the billionaires to move to lower-tax states. In his view, the key is a federal tax hike on the wealthy.
Tax advisors and accounts working with billionaires also echoed Cuomo's opinion, adding that ultra-rich people can game the system. For example, they could value a private company at below its real market value to avoid the tax.
What do you think? Do you agree or disagree with Cuomo's statement that a federal tax hike on the ultra-rich would be more profitable?