Plan to tax unrealized gains would drive a ‘stake in the heart of US markets’, hurt middle class, critics say

A leading Democrat’s proposal to tax unrealized stock gains among billionaires would hurt capital markets and lower the number of public companies while also reducing the number of Americans who invest in the stock market, according to critics.

Sen. Ron Wyden of Oregon has recently released a tax proposal after years of planning that takes aim at mark-to-market capital gains. A billionaire tax was also suggested as a way to help pay for President Joe Biden’s massive $1.75 trillion climate and social spending proposal, but it was shelved quickly after Sen. Joe Manchin (D-W.Va.) voiced immediate opposition.

“The plan’s opponents say that it would be unworkable and would harm investment,” the Washington Examiner reported. “A related fear is that by making it more difficult and costly to invest in stocks, it would dissuade people from offering stocks or buying them.”

According to critics, the Wyden plan and billionaire tax would hasten a long-term trend that is dampening participation in the stock market. Specifically, they argue that the proposal would also add to the number of companies choosing to undergo an initial public offering (IPO) of stock, according to Curtis Dubay, a senior economist for the U.S. Chamber of Commerce.

That will lead to a disadvantage for ordinary Americans earning middle-class wages who would seek to make market investments on the side.

“The fewer IPOs, the fewer public companies, the more that those who are able to tap those markets will do so, leaving the public to invest in an increasingly shrinking pool of public companies,” Dubay noted, according to the Examiner.

“It’s disturbing that they would even consider a plan that would put a stake in the heart of U.S. capital markets, dwarfing whatever benefit it might provide for social programs,” noted Hal Scott, an emeritus professor at Harvard Law School as well as the director of the Committee on Capital Markets Regulation, and John Gulliver, the committee’s executive director, in a Wall Street Journal op-ed.

They went on to say that the number of publicly-traded companies has decreased by more than half over the past 20 years, and they further argued that Wyden’s proposal would put a “quick end” to a recent small increase in IPO listings.

“The Wyden proposal would cut against IPOs because it would treat stocks more harshly than other forms of investment. While billionaires would pay a 23.8% tax on unrealized gains of public stocks, they would only be subject to a 1.22% interest tax on real estate or privately held companies, and those funds wouldn’t have to be paid until assets are sold,” the Washington Examiner reported. “That difference would make large investors less amenable to investing publicly, Scott and Gulliver wrote.”

For his part, Manchin has opposed several provisions in the Biden social and climate spending package, as well as the overall initial cost of about $3.5 trillion.

Specifically, he has opposed expanding green energy policies at the expense of fossil fuels — his state has robust coal and natural gas industries — and has pushed back on the expansion of existing social programs and new ones being proposed, saying he doesn’t want the country to turn into an “entitlement nation.”

More recently, he said he opposed a $4,500 incentive for electric vehicle purchases that only went to automakers with union shops, calling it “not American.”

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