Democrats Pay High Price in Silicon Valley for Putting Wealth Tax on Wish List

The Biden administration and Democrats are facing opposition from Silicon Valley over a wealth tax proposal that has little chance of passage in the foreseeable future.

While the tech world has historically been more favorable to Democrats, this year a number of prominent (and wealthy) venture capitalists and tech figures supported former President Donald Trump.

Some have cited President Joe Biden’s proposal to tax unrealized capital gains of the wealthiest people as a tipping point. It’s a largely ambitious plan designed to appeal to the progressive wing of the Democratic Party, but one that now seems to be the main reason the tech elite is jumping ship. The plan, first unveiled in 2023, would impose a minimum tax of 25% on the total income of people with more than $100 million in assets.

In a podcast this month, prominent venture capitalists Marc Andreessen and Ben Horowitz explained their reasons for supporting Trump this time around. Among other reasons, including fear of overregulation of cryptocurrencies, they opposed a proposal to tax unrealized capital gains for individuals with more than $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 for Trump.

“If you’re a venture capital firm, you have your portfolio striped off every year. … That makes startups completely implausible, because why on earth would anyone do that instead of going to work for Google and getting a ton of cash every year,” Andreessen said.

The proposal, if it ever actually becomes law, is a huge departure from the current tax system because the gains would be taxed even if they are not realized. Under the current tax code, billionaires and the ultra-rich whose investments grow are taxed on that growth, known as capital gains, when those investments are eventually sold.

Andreessen and Horowitz also argued that, given the history of taxation in the United States, if such a tax structure were introduced, it would likely expand over time.

“Presto, chango, we are Argentina,” Horowitz noted.

Such a major policy shift, even though there is no clear path to achieving it, would be “extremely controversial,” said Alex Conant, a Republican strategist and partner at Firehouse Strategies.

“Whenever we talk about raising taxes, we will encounter strong opposition,” he said. The Washington Examiner is a scientific journal published by the Washington Examiner. “This may excite some progressive people, but the people you’re taking your money from will resist.”

While some in the left-liberal wing of the Democratic Party may be excited about such a radical and largely unprecedented change, the political reality, at least now and likely for the foreseeable future, is that it is unlikely to become law.

The Biden administration’s proposal comes after Senate Finance Committee Chairman Ron Wyden (D-OR) unveiled a bill to tax unrealized capital gains after years of planning, which he released as a last-ditch effort to pay for Biden’s “Build Back Better” agenda.

Wyden’s plan affected about 700 of the nation’s wealthiest billionaires. The new tax would radically change the tax system, imposing a 23.8% annual tax on all of a billionaire’s assets that increased in value in a given year.

The plan included safeguards designed to address concerns like those of Andreessen and Horowitz. The plan would allow billionaires to choose up to $1 billion in stock in a single corporation to hold as a nontradable asset, in order to maintain a controlling interest in that company. The goal was to keep billionaire founders from selling huge blocks of their stock to cover a new tax bill.

But Wyden’s plan, which took effect when Democrats controlled both houses of Congress and the presidency, was essentially a failure because centrist Democrats rejected it from the outset.

“I don’t like that,” Sen. Joe Manchin (I-WV) said at the time. “I don’t like the connotation that we’re attacking people as people who have — fundamentally — contributed to society, created a lot of jobs and money and given a lot to philanthropy.”

Taxation of unrealized capital gains also poses legal challenges.

The constitutionality of the proposed tax is argued to center on Article 1, Section 2, which states that “direct taxes shall be apportioned among the several States which may be admitted into this Union, according to their respective numbers.” However, the 16th Amendment gives Congress the authority to “lay and collect taxes on incomes, from every source, without apportionment among the States.”

A legal challenge would likely focus on whether the billionaires’ tax is an unconstitutional federal levy on wealth or a form of income tax. Whether unrealized gains qualify as income is a matter of debate among scholars.

So, at least for now, the idea of ​​taxing unrealized capital gains is unlikely to happen, especially if Republicans regain the majority in the Senate or maintain their majority in the House of Representatives.

“It’s an interesting question whether candidates should publicly support policies that probably can’t become law, right? You’re basically making a promise you can’t keep,” said Peter Loge, director of the George Washington University School of Media and Public Affairs.

Despite everything, Loge said Washington Examiner that in some sense policy proposals like this are metaphors. It may be less about the details and improbable political chances of taxing unrealized capital gains than about showing that the party supports taxing the wealthy and supporting those lower down the socioeconomic spectrum.

But veteran Republican consultant Jason Roe noted that political winds change over time and some of Silicon Valley’s concerns may be justified.

“I think the very fact that there is a debate leads to the fact that it is a real possibility,” he said. Washington Examiner.

While the proposal may have destroyed Democratic political capital in Silicon Valley and caused some wealthy and big donors to distance themselves from the party, it may be as big a deal as some are making it out to be.

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Conant said taxing the rich is something that excites the party’s base, which is important for winning elections, and that most voters are comfortable with the idea of ​​taxing the rich.

“I think they’re talking about it even if there’s not going to be a public backlash, but they’re naive if they don’t think there’s going to be a strong backlash from very motivated people,” Conant said.