Among the most important progressive tax reforms proposed by the Biden-Harris administration is the Billionaire Minimum Income Tax (BMIT), which is a special tax on the handful of wealthiest households in the country, some of whom go entirely tax-free some years and pay relatively little in many others. The BMIT would only apply to the 0.05% of American households that are worth at least $100 million, fewer than 64,000 families in the whole country. The BMIT would ensure that the richest of the rich paid at least a 25% income tax rate each year on all their income—thereby increasing the fairness of the tax system, narrowing economic inequality and raising over half a trillion dollars over a decade to improve public services and lower public debt. 

But some members of the super-rich don’t want to pay a fairer share of taxes, and misinformation about the BMIT can spread, undermining public support for what is actually an enormously popular idea with voters across the political spectrum. Let’s separate fact from fiction:

Myth: There’s no need for a 25% BMIT on the unrealized capital gains of the ultra-rich, because they already pay the highest rate income tax.
Fact: While the top marginal income tax rate is 37%, billionaires do not pay this as their actual or “effective rate” for many reasons. First and foremost, billionaires do not grow their wealth through paychecks that are subject to federal income taxes like most workers do. Instead, billionaires often receive payments in the form of stocks, bonds and other assets, which are not subject to being taxed under the income tax. 

Myth: Centi-millionaires and billionaires who are rich in assets still pay a lot in taxes because they pay capital gains taxes when they sell the assets to get money to buy things they want.
Fact: Capital gains are taxed at a lower rate than income, so even if the super-rich sold their assets and paid capital gains taxes, they’d still be paying less in taxes than if they had received the same amount as a paycheck. But the wealthiest often do not even have to sell the assets and pay taxes in order to fund their lifestyles. Centi-millionaires and billionaires use tax loopholes and creative tax planning tactics, most notoriously “Buy, Borrow, Die,” to further lower their tax bills. Rather than selling assets off when they want to make purchases, billionaires are able to take out low-interest loans using the rising value of their stock as collateral. For example, Elon Musk was able to buy Twitter by borrowing $25.5 billion tax-free against his Tesla stock rather than selling it off which would have been a taxable event. That is why the 400 richest billionaires paid an effective federal income-tax rate of just 8.2% in recent years, nearly half of the 14.9% that the average middle-class family pays. 

Myth: The increasing value of my house is an unrealized gain and the BMIT means I’ll have to pay taxes on it.
Fact: Unless you have a net worth over $100 million, the BMIT will not affect your taxes. That said, most homeowners already pay taxes on the rising value of their homes in the form of property taxes. The BMIT will not affect the vast majority of American families whose largest unrealized gain is the appreciated value of their home, making up 70% of most families total unrealized gains. But for the elite households with over $100 million of wealth, their homes only account for 2% of their unrealized gains, with the majority of their unrealized gains in financial assets like corporate stock. Since homes are already subject to property taxes, while other unrealized gains are not, the average person pays a tax on the bulk of their wealth gains while billionaires do not.

Myth: The BMIT will tax my 401(k), IRA and other retirement accounts.
Fact: IRA and 401(k) accounts will not be taxed one cent more under the BMIT for anyone worth less than $100 million. Instead, the BMIT will create more security for families as the revenue raised from instituting a fairer tax code can be used to support public services that working families rely on. 

Myth: Once the BMIT is in place, they’ll expand it to include the middle class.
Fact:  The purpose of the BMIT is to help the middle class by increasing tax revenue without taxing anyone worth less than $100 million. For decades, the richest have been able to rig the tax code more and more in their favor. Because of that, working and middle class families now have to pick up the slack for billionaire tax-dodging. The BMIT begins to unrig the tax code to make it fair for everyone, rather than stacked in favor of the ultra-rich.