Is the Billionaire Tax Legal?

Rethinking a tax on billionaires

No one is better equipped to mount a constitutional challenge to a proposed tax on the unrealized capital gains of the ultrawealthy than, well, the 700 or so billionaires who may face the tax. And rumblings that the Democratic proposal may not survive Supreme Court review — to say nothing of the opposition from Senator Joe Manchin, Democrat of West Virginia, whose vote is crucial for the tax to pass — appear to have inspired a new idea to raise revenue from the rich.

“Super-rate brackets” may be the next attempt to tax the uber-rich, according to Punchbowl News. This would create higher taxes for incomes over a certain amount — 5 percent extra on incomes above $10 million and another 3 percent on incomes above $25 million. This idea is still under negotiation and may not materialize with these details, if at all.

The workaround would address the constitutional issue. Taxing income is straightforward, while a levy on wealth raises unresolved legal questions. Putting a wealth tax before the Supreme Court — where it would surely end up — with six conservative justices could resolve the matter, and set a legal precedent, in a way that would be a setback for Democrats. The super-rate solution avoids all of that, but doesn’t get to the heart of the wealth tax issue.

“I’m all in to get it done,” Senator Ron Wyden, Democrat of Oregon, said this week of the billionaire wealth tax he has been pushing. Wyden argues that the richest Americans pay far less in taxes, proportionately, than average workers because the ultrawealthy report relatively small incomes. “There are two tax codes in America,” Wyden said. “One that’s mandatory for workers and one that’s voluntary for billionaires.”

Billionaires don’t like it. Sam Bankman-Fried is worth $26.5 billion on paper. The founder of the cryptocurrency exchange FTX also gave $5 million to support Joe Biden’s presidential bid last year. Of the wealth tax, he told DealBook: “I think this could cause hugely negative collateral damage, significantly reducing the amount of innovation and taxable base in the first place.”

And for his part, the world’s richest person, Elon Musk, tweeted that his plan for the tens of billions that he would have to pay in a wealth tax would be “to get humanity to Mars and preserve the light of consciousness.”


Expectations dim for the latest G.D.P. data. In data set to be released today, economists predict that U.S. economic growth slowed in the third quarter, hurt by the Delta variant of the coronavirus and supply-chain problems. They expect the G.D.P. to have recovered to its prepandemic level by year’s end.

Three big carmakers take big hits from shortages. G.M. reported a 40 percent drop in third-quarter profit, Ford a 25 percent decline and Volkswagen a 15 percent fall. The common culprit: a dearth of computer chips, which the companies said wasn’t likely to improve anytime soon.

Paid leave appears to be out of Democrats’ spending plans. Opposition from Senator Joe Manchin means that efforts to create a new federal family and medical paid leave benefit will probably be stripped from the budget package.

Facebook tells employees to retain documents for legal reasons. The company said that the request was tied to investigations by governments and lawmakers. One such inquiry, according to The Wall Street Journal: the F.T.C. is looking into whether Facebook violated a 2019 settlement that led to a $5 billion fine.

Oil executives will testify about climate change. Top leaders from BP, Chevron, Exxon Mobil and Shell will appear before House lawmakers today to address accusations that they spent decades misleading the public about the oil industry’s role in climate change. Democrats compared the event with the tobacco hearings of the 1990s.

Dan Loeb’s big bet on breaking up Shell

Engine No. 1 made waves this year when it won seats on the board of Exxon Mobil in large part by citing climate concerns. Now, a bigger and better-known activist hedge fund — Dan Loeb’s Third Point — is aiming to shake up another oil giant in the name of environmental goals.

Third Point has become one of Shell’s biggest investors, the firm disclosed in a letter yesterday to its investors. Third Point said it began amassing its stake — which a person briefed on the matter said was about $750 million, making it one of Shell’s 30 biggest shareholders — in the spring. That was around the time that Engine No. 1 appeared poised to win its Exxon fight.

Its goal: break up Shell. In its letter, Third Point suggested splitting the oil giant into a legacy oil and gas business that could focus on returning cash to shareholders and a renewables and liquid natural gas company that could invest more in green energy. Third Point said Shell was serving too many masters, leading to “an incoherent, conflicting set of strategies.”

Shell has already been more aggressive than many of its peers in cutting carbon emissions, in part because of pressure from a Dutch court ruling this year. In its latest quarterly earnings, published today, Shell announced a more ambitious target for reducing its emissions as its profit fell short of expectations.

Loeb’s move is the latest sign that activists think sustainability is a winning strategy. It isn’t just that pushing Shell to increase its investment in green energy is morally right, Loeb’s firm argues, it makes sense financially, too. “Pursuing a bold strategy like this would likely lead to an acceleration of CO2 reduction as well as significantly increased returns for shareholders,” Third Point wrote.

“I think it’s fair to say that my tenure here represents change in a whole host of dimensions, and I think change can be hard.”

— Lina Khan, the F.T.C. chair, on her sweeping plans for the agency to crack down on corporate consolidation, which have made her “indisputably the most powerful figure in the antimonopoly vanguard,” New York magazine writes.

The corporate minimum tax and its discontents

Along with a potential new tax on billionaires (see above), Democrats this week have resurfaced a proposed 15 percent corporate minimum tax. But unlike the billionaire levy, a corporate minimum tax has broad support, at least among Democrats. Senator Kyrsten Sinema of Arizona, who has blocked other aspects of the Biden administration’s agenda, quickly endorsed it.

How it would work: Public companies file two sets of financial statements, one for the I.R.S. and the other for shareholders. The current federal corporate tax rate of 21 percent applies only to income reported to the I.R.S., which can be, for various reasons, smaller than profit reported in filings for shareholders, which are based on a different set of rules. The minimum tax proposal would require companies to pay at least 15 percent on the profits they report to shareholders, if that is larger than 21 percent on the income they report to the I.R.S.

The proposal would hand a lot more power to accountants. But professionals who specialize in public company accounting aren’t keen on the idea. Jeff Hoopes, an accounting professor at U.N.C.’s Kenan-Flagler Business School, did an informal survey of 39 accounting academics and none supported it. The most common complaint was that it would encourage companies to hide their reported profits, making public financial statements less useful.

“The rules for recognizing taxable income are based on politics and social incentives,” said Jack Ciesielski, a tax expert who is president of the investment firm R.G. Associates. That’s not compatible with the purpose of public accounting statements, he said.

It’s also may produce less revenue than promised. Democrats have estimated that the proposal will generate as much as $400 billion over 10 years. But the University of Pennsylvania estimated that a similar proposal would generate $227 billion over the same time period. The Tax Policy Center put it closer to $110 billion.

Exclusive: Alec Gores tries to solve for the SPAC market

A SPAC led by the buyout specialist Alec Gores, which announced a merger with the boutique apartment-hotel company Sonder in April, is restructuring the terms of its deal. The revised transaction will value Sonder at just over $1.9 billion, rather than $2.2 billion as originally planned. Affiliates of the Gores Group will contribute an additional $110 million in financing, alongside Fidelity, BlackRock and others. That’s on top of the deal’s original $200 million “PIPE” (private investment in public equity), which is a pot of money raised alongside a SPAC’s I.P.O. There’s also a new, $220 million debt facility.

The restructuring comes as SPACs strain under pressure. Wariness of the blank-check vehicles is dragging many down below their $10-per-share I.P.O. price, enticing investors to exercise their right to redeem their shares at that price when a merger is announced, a unique feature of the SPAC structure. Every redeemed share means less cash available to newly merged company. (The Gores SPAC merging with Sonder has been trading just a few cents below $10 per share in recent months.)

“The market has shifted — and we totally get that,” Gores told DealBook. “As long as you have a great company, the market is going to go in 100 different ways, and we just have to be smart enough to recognize where the market is.” The Gores Group, a serial SPAC sponsor, has access to capital and a network that other SPACs might not, giving it the ability to shift with market conditions. Still, there are drawbacks to these adjustments: A larger PIPE means more dilution for shareholders.

“Our focus,” said Sanjay Banker, Sonder’s president and C.F.O., “is to make sure the plan is fully funded — and so the arithmetic in the short run is much less important.” The hospitality firm, which reported record revenue and widening losses this month, recently opened a property in Paris as well as expanded in the Middle East and Mexico.



  • The sponsors of the SPAC taking Donald Trump’s social media start-up public could make over $400 million. Separately, Representative Marjorie Taylor Greene, the outspoken Georgia Republican, bought up to $50,000 worth of the SPAC’s shares. (WSJ, @congresstrading)

  • The chip maker GlobalFoundries priced its I.P.O. at the top end of expectations, raising $2.6 billion. (Bloomberg)

  • Shares in Rent the Runway sank in their debut after a strong start, closing down 8 percent. (CNBC)


  • New York City faces walkouts from municipal employees over a vaccine mandate set to take effect tomorrow. (NYT)

  • “Democrats’ Betrayals Are Jeopardizing American Democracy” (Rolling Stone)

  • The acting chairman of the C.F.T.C. told lawmakers that his agency, not the S.E.C., should be the main regulator of crypto markets. (Insider)

  • “This May Be Democrats’ Best Chance to Lower Drug Prices” (NYT Upshot)

Best of the rest

  • Cigarette sales rose last year, the first time in two decades. The pandemic was probably a factor. (WSJ)

  • Age checks are increasingly common on the internet, eroding the ability to stay anonymous. (NYT)

  • Sure, why not: Crypto investors are bidding hundreds of thousands on an NFT linked to a huge tungsten cube, which gives them the right to touch it in real life once a year. (Vice)

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