IBM Vice Chairman Challenges Biden’s Billionaire Tax; Highlights Income vs Wealth Disparity

In the aftermath of President Biden’s State of the Union address, the buzz around taxation of America’s wealthiest continues to intensify. 

With Biden aiming verbal sallies at billionaires for purportedly paying less than their fair share of taxes, a counterpoint emerges from Gary Cohn, former economic adviser to Trump and current IBM vice chair. 

According to Cohn, the President’s statements miss a crucial aspect of the wealth versus income debate. This article delves into the intricacies of the U.S. tax system and the dichotomy highlighted by Cohn’s recent remarks.

Unpacking the Billionaire Tax Debate

President Biden, in the recent State of the Union address, unequivocally targeted billionaires, proposing a heftier tax burden on America’s ultra-wealthy and aligning this correction with fairness and equity. 

His criticism extends to the notion that the elite pay less in taxes percentage-wise than members of professions such as teaching. Consequently, Biden has put forth a minimum tax rate of 25% for billionaires.

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Cohn’s Counterpoint: Metrics of Wealth

Diving into the essence of this tax debate, Gary Cohn provides a reality check on these assertions. He clarified on “Face the Nation” that the metric of a billionaire represents net worth — a concept distinct from taxable income. 

Cohn delineates that while net worth tallies one’s assets, taxable income is what is subject to tax rates, and it is not inherently proportional to wealth status.

The Divide Between Net Worth and Income

Cohn states, “You could be a billionaire and have no taxable income. You could not have $1 billion and have a high taxable income.” 

This is central to understanding his argument, as it speaks to the difference between sitting on assets which don’t necessarily produce taxable events and earning through ways that are actively taxed. 

In the U.S., varying assets can be liquid or illiquid, impacting their role in tax computations.

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Taxation Through the Lens of the Current Code

It is worth noting that Cohn attributes part of the current taxation landscape to reforms made under the Trump administration in 2017. 

These revisions have led to a situation where the top 10% of earners seemingly contribute more than 70% of taxes, contrasting with the bottom 50% who pay roughly 2.3%.

From Cohn’s perspective, all forms of income, save for those earned from tax-free bonds, face a taxation minimum of 20% in the country. 

“We do a very good job in this country of taxing income,” he stated, reinforcing the viewpoint that income, not wealth, is being effectively taxed.

The Corporate Tax Piece of the Fiscal Puzzle

Furthering the discussion on taxation, President Biden also proposes an increase in the corporate tax rate, pushing it up from the current 21% to 28%. 

He eyes an additional increase in the corporate minimum tax to 21%, a rate that would apply to companies declaring over $1 billion in profits— a stark rise from the 15% established in the 2022 Inflation Reduction Act.

The notion here follows a common thematic— that larger corporations ought to carry a heavier tax burden, aligning with the administration’s vision of a more equitable tax system.

A Complex Fiscal Future

This debate underscores the complexities of taxation policy and the challenge of aligning it with fairness and equity. 

As policymakers grapple with how best to adjust the tax code, the discourse Cohn brings to the table highlights key nuances that shape the conversation around fiscal policy. Whether the focus on billionaires’ tax rates will lead to tangible changes remains to be seen.

In striking this balance, the administration will need to tread carefully, considering the intricacies of net worth, income, and the potential impact of new tax laws on economic growth and investment.

As the debate continues, it will be incumbent upon leaders to carefully examine data, listen to diverse perspectives, and sculpt a tax regime that is both fair and conducive to a thriving economic environment.

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Drew Blankenship

Drew Blankenship is a cryptocurrency investor, family man, father and lifelong automotive enthusiast. He lives in North Carolina with his wife, daughter and their dog Enzo.