The Biden administration and Democrats are feeling blowback from Silicon Valley over a wealth tax proposal that has little chance of passing in the foreseeable future.
While the wealthy tech world has historically been more favorable toward Democrats, this year a number of prominent (and rich) venture capitalists and tech figures have thrown their weight behind former President Donald Trump.
Some have cited President Joe Biden’s proposal to tax the unrealized capital gains of the wealthiest people as the breaking point. It is a largely aspirational plan designed to appeal to the progressive wing of the Democratic Party, but one which appears to now be a major reason that the tech elite are jumping ship. The plan, first outlined in 2023, would impose a 25% minimum tax on the total income of those with assets greater than $100 million.
In a podcast this month, prominent venture capitalists Marc Andreessen and Ben Horowitz explained the reasons why they are throwing their weight behind Trump this time around. Among other reasons, such as the fear that cryptocurrencies will be overregulated, they balked at the proposal to tax the unrealized capital gains of those with wealth in excess of $100 million.
On the podcast, Horowitz described the administration’s proposal as “very scary” for startups. Andreessen said the wealth tax proposal was “the final straw” in tipping his support toward Trump.
“If you’re a venture firm, you’re getting strips of your portfolio pulled away from you every year. … This makes startups completely implausible because why on earth is anybody going to go do this instead of going to go work for Google and getting paid a lot of money every year in cash,” Andreessen said.
The proposal, if it were to ever actually become law, is a massive departure from the current tax regime because gains would be taxed even if not realized. Under the existing tax code, billionaires and the very wealthy whose investments increase in value are taxed on that growth, known as capital gains, when those investments are finally sold off.
Andreessen and Horowitz also made the argument that, given the history of taxation in the United States, if such a tax structure was enacted, it would likely be expanded over time.
“Presto, chango, we’re Argentina,” Horowitz remarked.
Such a big departure in policy, despite currently having no clear path to actually happening, would be “super controversial,” according to Alex Conant, a GOP strategist and a partner at Firehouse Strategies.
“Whenever you’re talking about raising taxes, you’re going to run into stiff opposition,” he told the Washington Examiner. “It may excite some progressives, but the people you’re taking money from are going to put up a fight.”
While some on the liberal-left flank of the Democratic Party might get excited about such a sweeping and largely unprecedented change, the political reality, at least right now and presumably in the near future, is that this won’t likely become law.
The Biden administration’s proposal came after Senate Finance Committee Chairman Ron Wyden (D-OR), unveiled legislation for a tax on unrealized capital gains after years of planning. He released it as a last-ditch pay-for for Biden’s “Build Back Better” agenda.
The Wyden plan targeted the country’s wealthiest 700 or so billionaires. The new levy would have dramatically altered the tax system by imposing a 23.8% annual tax on all the billionaires’ assets appreciated in a given year.
There were guardrails in the plan to allay fears like Andreessen and Horowitz have. The plan would have permitted billionaire shareholders to choose up to $1 billion in stock of a single corporation to hold as a nontradeable asset to retain a controlling interest in that company. The intent was to stop billionaire founders of companies from selling off huge chunks of their shares to foot the new tax bill.
But the Wyden plan, which came when Democrats controlled both chambers on Congress and the presidency, was basically dead on arrival, with centrist Democrats batting it down right out of the gate.
“I don’t like it,” Sen. Joe Manchin (I-WV) said at the time. “I don’t like the connotation that we’re targeting different people as people that — basically, they contributed to society and create a lot of jobs and a lot of money and give a lot to philanthropic pursuits.”
Taxing unrealized capital gains faces legal challenges too.
Arguments about the constitutionality of the proposed levy center on Article 1, Section 2, which dictates that “direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers.” However, the 16th Amendment gives Congress the authority to “lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States.”
The legal challenge would conceivably focus on whether a billionaire tax is an unconstitutional federal levy on property or a form of income tax. Whether unrealized gains can be considered income is a subject of debate among scholars.
So, at least for now, the idea of taxing unrealized capital gains is a long shot, especially if Republicans retake the Senate or hold the House.
“It is an interesting question whether or not candidates should publicly support policies that probably can’t become law, right? Basically, you’re kind of making a promise you’re not going to keep,” Peter Loge, director of the George Washington University School of Media and Public Affairs, said.
Still, Loge told the Washington Examiner that in some ways political proposals like this are metaphors. It may be less about the nuts and bolts and long-shot political odds of taxing unrealized capital gains and more about showing that the party supports taxing the rich and supporting those who are lower on the socioeconomic spectrum.
But Jason Roe, a veteran Republican consultant, pointed out that the political winds shift over time and some of that concern from Silicon Valley might be warranted.
“I think just the fact that the debate is out there is a slippery slope to it being a real possibility,” he told the Washington Examiner.
And while the proposal might have burnt up Democrats’ political capital in Silicon Valley and has caused some wealthy and big donors to shy away from the party, it might be as big of a deal as some might make it out to be.
Conant said taxing the rich is something that excites the base of the party, which is important for winning elections, and most voters don’t mind the idea of taxing the rich.
“I think that they talk about this thing even if there’s not going to be popular opposition, but they’re naive if they don’t think there’s going to be stiff opposition from some very motivated people,” Conant said.
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