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On September 12, Senate Finance Committee Ranking Member Ron Wyden (D-OR) detailed his proposal to eliminate the preferential tax rate for long-term capital gains and, for those above certain income thresholds, impose a mark-to-market approach requiring capital gains to be taxed annually at ordinary income levels. He also said the revenue from such a proposal, estimated to be between $1.5 trillion and $2 trillion over 10 years, would be dedicated to shoring up the Social Security system.

Wyden first previewed the plan in April, and has now provided details in a Finance Committee document and at a Center for American Progress (CAP) event. The "anti-deferral [mark-to-market] accounting rules" would only apply to individuals with more than $1 million in annual income or $10 million in assets. Applicable taxpayers would be required to pay annual taxes on unrealized gains and take a deduction for unrealized losses on liquid assets such as stock, while for illiquid assets mark-to-market would not apply but a lookback charge would be imposed on gains realized upon the sale of these assets. A taxpayer's built-in gains accrued prior to becoming an applicable taxpayer, including prior to enactment of the proposal, would be taxed under transition rules that would ensure they are not required to pay the full amount of the tax due on their unrealized built-in gains in the first year.

While long-term capital gains and dividends would be taxed at ordinary income rates for all taxpayers, the document said, "the middle class would not pay more tax than they do now." The plan would exempt from the applicable taxpayer threshold:

• the first $2 million of combined value of primary and secondary residences, with the value above $2 million considered an applicable asset
• the first $5 million in combined value of operating farms
• tax-preferred savings accounts with a combined value that doesn't exceed $3 million

During the CAP event, Wyden suggested that because of such rules, the idea that the middle class would be hurt under the plan is fiction. Currently, capital gains are taxed only when the underlying securities are sold and at a top rate of 23.8%. Wyden has long highlighted the different tax treatment of ordinary income and investment income and repeated upon presenting his plan that there are "two tax codes in America" — one for the wealthy, and one for average Americans.

A number of wealth tax proposals have been put forward this year with Democrats controlling the House and lining up for the 2020 presidential race. During a Q&A at the CAP event, Senator Wyden acknowledged the emphasis on tax issues among Democratic candidates, and said, in contrast to new taxes, that he wants lawmakers to be able to present working class Americans with a plan to collect taxes already owed. He said Finance Committee Democrats have been particularly interested in the figure, cited in the Wall Street Journal August 27, that "U.S. households had $3.8 trillion in unrealized gains in stocks and investment funds, plus more in real estate, private businesses and artwork."

Senator Wyden said he expects tax policy to be a focus of the Finance Committee in 2021, and, having cited the nation's "crumbling" roads in his introductory remarks, suggested it was inappropriate for Republicans to have focused on tax reform over infrastructure in 2017.

Senator Wyden solicited comments on numerous elements of the plan, which is attached. Comments can be submitted to: demcapitalgainsreform@finance.senate.gov.

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ATTACHMENT

Treat Wealth Like Wages