Since the start of the pandemic, the nation's billionaires have done well. Very well. 

Between March 18, 2020, and October 15, 2021, the total wealth of American billionaires increased more than 70% — from $2.9 trillion to $5 trillion. 

Over the same time period, the six wealthiest Americans saw their income increase even more sharply. This group, which includes Bezos, Zuckerberg, and Gates, has increased its wealth by more than 125% — from $400 billion to $896 billion. 

The current wealthiest American, Elon Musk, was worth $209 billion on October 15. But, according to the Bloomberg Billionaire Index, Musk is now worth $289 billion. Musk's net worth increased $36 billion on Monday. 

But Musk and his fellow billionaires pay an extremely small percentage of these gains in taxes. Leaked tax records obtained by ProPublica revealed that in 2018, when Musk was the second-wealthiest person in the world, he paid no federal income taxes. Between 2014 and 2018, Musk's wealth increased by $13.9 billion and he paid $455 million in taxes — a true tax rate of just 3.2%. Over the same time period, the 25 wealthiest Americans paid an average true tax rate of 3.4%.  

How do the billionaires do it? Yes, there are complex tax avoidance strategies. But the core reason is simple. Most billionaires increase their wealth almost entirely from the appreciation of assets, mostly large quantities of stock. (Musk, Zuckerberg, and other billionaire CEOs pay themselves a salary of $1 per year.) Under the current tax system, stocks and other assets are only taxed at the capital gains rate (about 23.8%) when they are sold. 

Billionaires can get as much cash as they need by borrowing money against the value of their assets. Financial institutions provide them with loans with interest rates under 1%. (In 2020, Musk had "pledged more than 92 million of his 227 million Tesla shares to secure personal debts.") While average Americans get their taxes deducted automatically from every paycheck, billionaires can avoid paying most taxes indefinitely. And many of them do. 

This gravy train, however, may be ending soon. 

Democrats were initially planning to pay for the Biden administration's Build Back Better plan by raising the corporate tax rate from 21% to 26.5% and restoring the top income tax rate from 37% to 39.6%. This would partially roll back Trump's 2017 tax cuts. The money would pay for a genuine effort to combat climate change, universal Pre-K, expanded Medicare benefits, the nation's first paid family leave plan, and other investments. 

But recently, Senator Krysten Sinema (D-AZ), who voted against Trump's tax bill, abruptly said she opposed any increase to the corporate or individual tax rate. This sent Democrats scurrying for alternative sources of revenue. Soon, that attention focused on a proposal being developed by Senator Ron Wyden (D-OR) to increase taxes on billionaires. The Wyden proposal would tax the unrealized capital gains of people whose wealth exceeds $1 billion. Currently, that threshold applies to 745 people, or .0005% of the population. 

But since these people have such an immense amount of wealth, Wyden's proposal could raise an impressive amount of money. 

Musk is not happy. 

As Robert Reich noted, it would take a typical worker 800,000 years to earn as much as Musk made on Monday. 

Leon Cooperman, a hedge fund manager worth about $2.5 billion, was more outspoken. "We should not be attacking wealthy people," Cooperman said. He called the proposal "stupid." Bezos, Zuckerberg, Ballmer, and other billionaires did not respond to a request for comment by the Washington Post. 

How the billionaire tax would work

The details of the plan are still being hashed out but the basic structure is clear. The tax would apply to "those with assets of more than $1 billion, or three-years consecutive income of $100 million." Each year, people who meet that threshold would be required "to pay taxes on the gains of stocks and other tradeable assets, rather than waiting until holdings are sold." The rate is expected to be similar to the current capital gains tax, which is around 23.8%.

For assets that are not tradeable, like real estate or privately held companies, "taxes will be deferred until the asset is sold." Billionaires, however, would be charged interest for "years that taxes were avoided and the asset increased in value." 

How much money the billionaire tax could raise

On Sunday, Nancy Pelosi estimated that the billionaire tax could raise $200 to $250 million over 10 years. And that might significantly underestimate the revenue potential. 

In the first year, the tax would apply to all the unrealized capital gains held by the nation's billionaires. According to the latest figures, billionaires currently hold about $5 trillion in wealth. Of that total, $3.5 trillion is in stocks. Gabriel Zucman, an economist that teaches at the University of California, conservatively estimates that 60% of billionaire stock holdings represent unrealized capital gains. That's a tax base of $2.1 trillion. If you tax that at 23.8% it would generate $500 billion in revenue. $275 billion would come from the top 10 billionaires alone. 

That excludes revenue from any non-tradable assets that are sold during the 10-year budget window and any additional unrealized capital gains over that period of time. So a tax that impacts fewer than 1,000 people could pay for a major portion of the entire reconciliation package. 

How difficult would the billionaire tax be to enforce

Critics like Senator Mitt Romney (R-UT) say that billionaires will simply shift their holdings into non-tradable assets to avoid paying the tax. "These multi-billionaires are gonna look and say, ‘I don’t want to invest in the stock market, because as that goes up, I gotta get taxed. So maybe I will instead invest in a ranch or in paintings," Romney said. 

Romney, who is worth just a few hundred million dollars and would not be impacted by the tax, underestimates the vast wealth of those involved. There are only a handful of paintings that have sold for over $100 million — and most are rarely available. The most expensive home on Zillow is $169 million. It's simply not practical for Musk and Bezos to shift billions into art and real estate. And, to the extent that does happen, the billionaire tax would still apply and the unrealized gains would accrue interest until the assets are sold. 

In an interview with Anand Giridharadas, Wyden said that the final legislative text will have "a number of anti-abuse provisions" and close "a lot of loopholes." Robert Willens, the tax guru for the ultra-wealthy, is not projecting confidence. "This is going to be perhaps the most difficult tax we have ever seen in terms of trying to plan to minimize it," Willens told Politico.  

For many top billionaires, selling their stock is not an attractive option. Zuckerberg, whose wealth is composed almost entirely of unrealized capital gains, can't sell his stock without losing control of Facebook. Musk also "doesn’t like selling stock" and "told The Wall Street Journal in 2016 that he planned to never sell his Tesla shares." 

It would be very difficult for billionaires that hold their wealth in publicly traded companies to avoid enforcement. Their total ownership — including stock owned indirectly through trusts, shell companies, and other vehicles —  is reported to the SEC and disclosed publicly. "For these guys, the truth is it’s so easy to enforce the tax because it’s so obvious what they own," Zucman said.