Democrats' billionaires tax explained

There is now legislative language behind the push to tax American billionaires on unrealized capital gains, as Sen. Ron Wyden last night released his 107-page plan.

Why it matters: This would be a sea change in U.S. tax policy, which has only applied to realized gains (otherwise known as income).

• Wyden's proposal would apply to those with more than $1 billion in assets or more than $100 million in adjusted gross income over three consecutive years.
• The biggest tax bills would come up front, charging a long-term cap gains rates on all unrealized monies for tradeable investments. Payments could be spread out over five years.
• Then, going forward, payers would be on the hook for annual capital gains taxes on new unrealized income — although unrealized losses could be carried forward as offsets.
• Pay special attention to the term "tradeable." Not only because it likely applies to crypto, but because it wouldn't apply to illiquid securities or real estate. Yes, there are deferred interest charges included for certain non-tradeable assets — to be paid upon sale or transfer — but, in general, Wyden is an indirect supporter of "stay private longer."

Be smart: Treasury Secretary Janet Yellen on Sunday pushed back against defining this as a wealth tax, likely for constitutional reasons (and because it's different from Sen. Elizabeth Warren's European-style net worth tax). House Speaker Nancy Pelosi, also on Sunday, did call it a wealth tax. Pelosi is right.

Be smarter: There are very good philosophical and practical arguments against taxing unrealized gains, but the hand-wringing from some about how this will kill capitalism is just laughable.

• People will still strive to become insanely wealthy because ... well, because they'll be insanely wealthy. And most of them can either sell some stock or take out loans to cover these tax bills (just like they currently take out loans against unrealized earnings).

Be smartest: Democrats haven't yet demonstrated an ability to get any of their major economic plans passed, beyond a COVID relief bill earlier this year. In other words, there's little imperative for celebration or consternation.

The bottom line: The definition of income could be changing, at least for the wealthiest of the wealthy.