How the Billionaires Income Tax Would Work

The proposal, if implemented, would likely generate a large chunk of revenue in the first few years from company founders who would pay tax on the high value of their businesses against a zero or very low cost basis.

The plan would accelerate the tax collection on future gains and also impose taxes on gains now that would have been avoided by deaths that won’t occur for decades. After that, the annual revenue from the plan would depend on fluctuating asset values of tradable stocks.

The plan also has rules limiting how billionaires can use trusts, deferred compensation, annuities, life insurance, tax-advantaged small-business stock and the tax breaks in low-income “opportunity zones” created in the 2017 tax law.

Mike Kosnitzky, partner and co-head of Pillsbury’s Private Wealth practice, has spent the past few days talking with a dozen or so ultrawealthy clients potentially affected by the plan.

“There are some who want to be very proactive and do whatever’s necessary” to minimize the tax, Kosnitzky said. “Some are resolved to saying, ‘Whatever it’s going to be, it’s going to be.’ Those are mostly my Democrat clients.”

The proposal would motivate the very wealthy to shift from publicly traded assets into other assets that wouldn’t be taxed each year, he said. They may still be able to use complex strategies they have turned to for years like moving assets into foundations and other tax-friendly vehicles. New approaches will likely crop up.

“Smart investment bankers and asset managers are already thinking about how to financially engineer products that will emulate existing stocks but be hard to value,” Kosnitzky added.

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