By Steve Trollope, Reno Gazette Journal, April 19, 2022
Some successful Nevada businesses could be hit with a big new tax, levied not just on their revenue, but on the value of their unsold assets. The proposed federal asset tax, which is included in President Biden’s recently released budget, could hinder investment and new job creation across the state at a time when we can least afford it.
Hardworking Nevadans need our federal lawmakers to push back against it. Senator Jacky Rosen has a record of voting in lockstep with President Biden. However, this latest tax proposal is a step too far and Nevadans need her to speak out and oppose this disastrous aspect of the president’s fiscal year 2024 budget plan.
The federal asset tax would impose a minimum 25 percent tax rate on regular income and the increase in the value of assets during the tax year, impacting taxpayers who have combined income and assets that exceed $100 million.
While $100 million may sound like a lot of money, this proposed federal asset tax would impact many wealthy individuals who have their net worth reflected on paper, which may not be backed by hard assets. But why should we believe that it will stop there? How long before the federal government spends all that new revenue and goes looking for more revenue by dropping the tax threshold to include millions of new taxpayers, as they have done in the past?
We all want people to pay their fair share of taxes, and there are a lot of loopholes in our tax code that should be closed before this kind of tax is implemented.
There are two things dangerously wrong with this plan.
First, is the part about taxing assets, which would include unrealized capital gains. Never before has the U.S. government taxed illiquid assets from people. Capital gains tax is levied when assets are sold, and their real value is clear. This new tax would allow government bureaucrats to arbitrarily place a value on everything from retirement accounts to farmland, and then demand — in cash — 25 percent of that estimated amount to pay this federal asset tax. It’s easy to see the disastrous consequences of such a policy.
Owners of family farms, ranches, manufacturing companies or a variety of other businesses could be forced to sell their holdings to raise enough money to pay the IRS. The rights to innovative technologies could be put on the chopping block as privately held tech companies seek cash to avoid defaulting on their tax bills.
Originally, federal income tax — which was specifically and intentionally levied solely on income, not total assets — was supposed to be imposed only on high-income earners. That’s hardly true anymore. The Alternative Minimum Tax was also sold to Americans as a tax on the super-wealthy, but within just a few decades, it expanded to include tens of millions of taxpayers. There is no reason to think that the relatively small number of individuals targeted with the Federal Asset Tax will not grow exponentially in coming years.
Nevadans know that burdensome taxes do not promote a healthy business environment. Pro-growth policies benefit everyone and lead to better outcomes for our citizens. That is why the Tax Foundation ranks Nevada as the seventh-best in the nation on its 2023 state business tax climate index. This is also why Reno is among the top 10 destinations for businesses fleeing California.
Sadly, we have some state lawmakers who want to follow President Biden’s lead and take steps towards enacting a state-level wealth tax. Recently, Democratic Assemblywoman Natha Anderson introduced a resolution requiring a study on wealth tax proposals being considered in other states, like California. Our state lawmakers need to draw a line in the sand and reject any attempts to replicate the failed tax policies of our neighbors.
State and congressional legislators need to stand united against these proposed tax increases. I hope Senator Rosen will stop voting with the president on policies that harm hard working Nevadans who are building businesses and creating jobs.
Steve Trollope is a Reno-based financial consultant who works with mid-sized companies to help them access capital and grow their businesses.