Thread by @MorningBrew

Elon Musk is really really rich.

So rich that some Democrats have floated a “billionaire’s tax” to make Musk and his Perrier-drinking peers send a lot more of that wealth to the government.

A thread on what the "billionaire's tax" is.

The proposal is an attempt to raise billions in revenue to offset the costs of Democrats’ ~$1.75 trillion spending bill.

It’s...extremely unusual.

The tax would likely target a smaller group of individuals than any other tax in American history—those with $1 billion in assets, or who earn at least $100 million in income for three consecutive years. It could apply to just 700 taxpayers.

Basically, these people.

And they would be taxed on something extremely out of the ordinary: Unrealized capital gains.

Here’s what that means:

Currently, investments like stocks or real estate are taxed only when they are sold for a profit.

Under the billionaire’s tax, you’d be taxed on your gains even if you haven’t sold. It would be like taking a stack of chips from your roulette winnings before you cashed them in.

The rationale: The existing tax system is set up in such a way that the ultrawealthy can dramatically lower their tax burden by, for example, getting compensated in stock options rather than a salary like the rest of us. This plan would make that stock taxable.

Plus, it would raise a truly ridiculous amount of money. The richest 169 Americans are sitting on roughly $516 billion in unrealized gains.

Elon Musk himself would have to pay up to $50 billion over the first five years the tax gets implemented, according to one analysis.

Many experts are calling it unworkable.

Or worse.

NYU finance professor Aswath Damodaran wrote that the proposal is “perhaps the worst thought-through and most ineffective attempt ever at rewriting tax code.”

Questions like, “What do you do when an investment goes down?” “How would they come up with the money without selling other assets?” and, “Is this even constitutional?” are not easily answered.

Big picture: While some Democrats support the plan, others think it’ll be a logistical nightmare. Still, they’ll need to agree on some way to raise more revenue in order to push their spending bill forward before the week is over.

More here: morningbrew.com/daily/stories/…