It’s about 280 days into Biden’s Presidency and he has finally decided to designate Federal Communications Commission Acting Chair, Jessica Rosenworcel as permanent Chair.

Along with Rosenworcel’s Chair nomination, comes the nomination of Gigi Sohn, a long-time democratic advocate, not just for Title II net neutrality and a host of other socialist plans, but was also never shy about using Title II net neutrality as a method for federal broadband rate regulation.

Biden’s delayed nomination of Jessica Rosenworcel to FCC Chair that is a mere two months before her required departure from the FCC, does not create an artificially expedited timeline for Sohn’s confirmation. Nor should Republicans feel pressure to carry water for Biden and Senate Democrats slow process.

Even with the overall lag in nominations, the FCC was expected to be a key player in the administration’s assault on American free markets as outlined in Biden’s July 9 executive order on competition (which calls on the FCC to reimpose net neutrality) and shored up by the nomination of Federal Trade Commission Chair Lina Khan, who was initially nominated as Commissioner and only elevated to Chair after she was confirmed by the Senate.

It would seem that the Administration is not back-dooring its more progressive nomination, Sohn, to the FCC by first elevating Rosenworcel to the Chair position. However, Republicans should not take this as a comfort.

Though Rosenworcel, a long-time telecommunications professional on both the Hill and at the FCC, is seen as relatively moderate in the current environment, she would require Sohn’s vote to get through anything on her markedly progressive agenda, and a guarantee that items that could have passed in a bipartisan fashion will instead become part of a radical left-wing agenda.

Republicans are under no circumstances are responsible for both of these nominations to go through before the end of the year. Senate democrats will likely want to confirm Rosenworcel quickly because she is serving in a "holdover" period after her term expired last year. If she is not confirmed by the end of this year, she will have to leave the FCC until confirmation, something she experienced in 2016-17 as well. 

Due to the limited number of legislative days in the calendar, odds are against final Senate confirmation this year. That is a problem of Biden’s own making; not that of Senate Republicans.

Sohn’s nomination in particular should not be on an artificial rush. She is seen as a controversial figure and could require the Vice President's tie-breaking vote in the Senate. While serving as Senior Advisor to former FCC Chairman Tom Wheeler, she shepherded the Title II version of net neutrality that imposed burdensome regulations and cause broadband investment to decrease for the first time outside of a recession, supported price regulation on broadband, lead the FCC’s unlawful attempt to preempt state laws restricting municipal broadband, and pushed for asymmetric privacy rules on Internet service providers and tech companies that were later revoked with the Congressional Review Act.

The Biden Administration is looking to create an artificial time crunch to push through exceeding controversial nominations at the FCC. If Rosenworcel’s nomination had occurred by springtime, which appears to be customary looking at the history of nominations and confirmations from presidents Reagan through Trump (see list below), the FCC would not be on the brink of falling into de facto Republican control. Sohn’s confirmation should not be linked to Rosenworcel’s end of year deadline to leave the FCC.

Without Rosenworcel’s confirmation, democratic Commissioner Geoffrey Starks would set the agenda, but he would be up against a republican majority, likely leading to a continuation of the bipartisanship we are seeing at the FCC right now.

With Rosenworcel’s unexpectedly quick confirmation, the FCC could continue its bipartisan business as it has thus far. In fact, under Republican FCC Chairman Pai the majority of votes were bipartisan as well.

With Sohn’s confirmation alongside Rosenworcel’s, we will see the FCC devolve into partisan politics and continuations of policy’s that have already been shown not to work, Title II net neutrality being chief among those.

FCC Chair Days until Confirmation after Nomination, Reagan through Trump

Photo credits: "FCC Commissioner Jessica Rosenworcel" by the Internet Education Foundation and "Gigi Sohn" by Joel Sage both licensed under CC BY 2.0

Democrats are pushing a tax on unrealized gains. This “mark to market” regime, or wealth tax would force Americans to pay taxes every year on the paper gain in the value of assets (i.e. stocks, collectibles, real estate).

Currently, taxpayers only pay the capital gains tax when an asset is sold. This makes sense because the asset is illiquid until it is disposed of. This tax on unrealized gains would create a new tax system that requires taxpayers to pay tax on the value of an asset based on the value of these assets on a particular arbitrary date.

Here are 10 reasons to be concerned with a tax on unrealized gains:

1. The Tax would Empower The IRS

In order to enforce this tax, the IRS would have to be given vast new powers to value the assets of taxpayers. This would be an extremely invasive and difficult task. As noted by Howard Gleckman of the Tax Policy Center, taxing unrealized gains is not practical and would be extremely complex:

“The concept is theoretically appealing but raises many practical problems. While in principle it could work for publicly traded securities and other investments with easily determined market values, many assets don’t fit that bill.”

With the IRS’s history of discrimination and malpractice, it should be concerning to have agents collect this information. There would be significant compliance and administrative issues with this tax. For instance, the IRS would have to monitor assets of taxpayers to determine if they hit the thresholds and are encompassed by the tax. Many assets cannot easily be valued so both the taxpayer and the federal government would be required to hire armies of accountants and lawyers to determine valuations.

2. The Tax Would Likely Grow to Hit Millions of Americans Over Time

According to media reports, the tax would apply to taxpayers with over $1 billion in assets or a taxpayer that earned $100 million in income for three years. This would impact 700 taxpayers according to reports. However, it is likely the tax will grow in size in future years to hit thousands or even millions of taxpayers.

When the federal income tax was first imposed in 1913, it imposed a 1 percent tax on incomes above $3,000 (4,000 for married couples). The top rate was 7 percent on incomes of $500,000. In Today’s dollars the 1 percent tax would be imposed on incomes above $83,124 for an individual and $110,832 for a married couple, while the top 7 percent rate would be imposed on $13.8 million in income.

Today, the bottom income tax bracket is 12 percent and applies to income of $9,950 for a single filer and $19,900 for joint returns, with a $12,550 standard deduction ($25,100 for joint returns). The top rate is 37 percent on incomes above $523,600 ($628,300 for joint returns).

Similarly, Congress enacted the Alternative Minimum Tax (AMT) in 1969 following the discovery that 155 people with adjusted gross income above $200,000 had paid zero federal income tax. Over time, The AMT grew so large that millions of Americans paid the tax and millions more saw increased tax complexity. By 2010, the AMT grew so large that Congress had to step in and prevent it from hitting nearly 30 million Americans (20 percent of filers).

3. The Tax Will Encourage Taxpayers to Move Overseas or Move States

Taxpayers impacted by the tax on unrealized gains will be incentivized to move overseas in order to avoid the tax. In response to this concern, several proposals have created an “exit tax” on taxpayers that want to leave the country. The Washington Post editorial board said this arrangement "conveys a certain authoritarian odor," as it binds people to the United States with severe financial consequences for deciding to leave.  

In addition to encouraging taxpayers to leave the country, it would result In taxpayers leaving states with high capital gains taxes, like California to states with no capital gains tax. Blue states would like to ensure their state capital gains tax would apply to unrealized gains so taxpayers would be hit twice In many states.

4. The Tax Will Harm Jobs and the Economy

This tax would lead to a reduction in new investment in the economy, which would harm working families and small businesses and lead to a reduction in jobs and wages. An American Action Forum (AAF) study, on Senator Elizabeth Warren's (D-Mass.) $3 trillion wealth tax proposal found that the tax would decrease innovation and investment, driving down wages and causing unemployment. 

It would shrink GDP by $1.1 trillion over the first ten years, and then continue to shrink it each year by $283 billion, or 1 percent of GDP. 

This tax would result in a loss of $785 billion in labor income. Over the long run, wage losses would amount to $241 billion annually. As described in AAF’s study, “In short, over the long run Warren’s wealth tax is more damaging to workers than anyone else.”  

The tax on unrealized gains being considered by Democrats would undoubtedly have similar negative Impacts on workers and the economy.

5. The Tax Code is Already Steeply Progressive

While Democrats routinely assert that the “rich” need to pay their “fair share,” the tax code is already steeply progressive.

According to the Congressional Budget Office, the top one percent of earners paid 41.7 percent of income taxes in 2018 and 25.9 percent of federal taxes. The top 20 percent of earners paid 90.9 percent of income taxes and 69.8 percent of all federal taxes.

While the “rich” pay over 40 percent of income taxes, they earn just 21 percent of all income, according to the Heritage Foundation. The bottom 50 percent pay just 3 percent of income taxes, while the bottom 75 percent pay just 13 percent of income taxes.

In addition, the Joint Committee on Taxation found that taxpayers with incomes of $1 million or more pay an average federal tax rate of 31.5 percent, while the bottom half of income earners ($63,179 or less) pay an average rate of just 6.3 percent.

6. The Tax would Likely be Unconstitutional

Article I, Section 9 of the U.S. Constitution bars the federal government from imposing direct taxes unless they are apportioned. To get around a decision made by the Supreme Court in Pollock v. Farmers’ Loan & Trust Co. (1895), which ruled the income tax unconstitutional under Section 9, the Sixteenth Amendment was adopted. This amendment authorized an unapportioned tax on income “derived from a source.” Commissioner v. Glenshaw Glass (1955) described the “derived” requirement as income that constitutes “an accession to wealth, clearly realized, over which the taxpayer has complete dominion.” 

In the context of mark-to-market taxation, “unrealized” gains certainly do not meet the “clearly realized” condition. This form of taxation is also, indisputably, not apportioned. Further, the Supreme Court explicitly said that unrealized gains do not qualify as “income” under the 16th Amendment. The Supreme Court ruled in Eisner v. Macomber that realization is a requirement for a tax to be considered income under the 16^th Amendment: 

“… we are brought irresistibly to the conclusion that neither under the Sixteenth Amendment nor otherwise has Congress power to tax without apportionment a true stock dividend made lawfully and in good faith, or the accumulated profits behind it, as income of the stockholder.” 

If mark-to-market taxation of capital gains is a direct tax, is not covered by the 16^th Amendment, and is not apportioned, then it is unconstitutional.

7. Americans Oppose Taxing Unrealized Gains

Americans oppose taxing unrealized gains by a ratio of 3-1, according to a survey experiment with 5,000 respondents published in May 2021. The paper, The Psychology of Taxing Capital Income: Evidence from a Survey Experiment on the Realization Rule, is authored by Professor Zachary D. Liscow of Yale University Law School and Edward G. Fox of the University of Michigan Law School. 

Specifically, 75 percent of respondents opposed taxing unrealized gains, with all demographic groups opposing the measure:

"Respondents strongly prefer to wait to tax gains on publicly-traded stocks until sale versus taxing unsold gains each year: 75% to 25%. Though this opposition is strongest among those who are wealthier or own stocks, all demographic groups oppose taxing unsold gains by large margins. This opposition persists and is often strengthened when looking across a variety of other assets and policy framings."

Survey-takers’ massive rejection of abandoning the realization rule held up even after they heard arguments in favor of this kind of taxation, when they themselves don’t own stock, and even if they’re Democrats. Respondents did not consider the gains "real" until the stock has yielded cash in the taxpayer's hand. Simply put, taxing unrealized gains cuts deeply against Americans’ sense of fairness and common sense.

8. The Tax has Failed and Been Repealed in Foreign Countries

Foreign countries have tried taxing wealth before, and it has failed. In 1995, 15 countries implemented a wealth tax. Since then, 11 have been repealed.  The countries that have repealed their wealth taxes are Sweden, Denmark, the Netherlands, Austria, Finland, France, Germany, Iceland, Luxembourg, Ireland, and Italy.

In addition to cost of enforcement, which Austria cited specifically, and the difficulty of valuing assets, these countries also found that the tax was ineffective at combating wealth insecurity and did not redistribute wealth in favor of low-to-middle income earners.      

9. The Tax Will Force Taxpayers to Liquidate their Assets and Could Create Market Volatility

The tax would force taxpayers to liquidate their assets because many will have their wealth tied up in a business. For publicly traded companies, taxpayers will have to sell stock which could affect the value of the company, reduce the value of retirement portfolios and harm investors.

It could also result in taxpayers losing control of parts of their business if the company is privately held or lead to a company being broken up.

There is also the problem of how this tax would treat losses. It could require the federal government to refund taxpayers if they have a loss in a given year. At the very least, it could zero out the tax liability for wealthy taxpayers in a certain year.

10. It Would Impose Taxes Retroactively

A tax on unrealized gains would punish taxpayers for past decision making by taxing paper gains from the original date that asset was acquired. It would impose significant tax liability when first implemented as taxpayers would be required to pay taxes on assets they first acquired years or decades ago. Even if this payment was spread out over several years, it would be a significant tax liability.

The tax code must be applied with consistency, certainty, and fairness. Taxpayers routinely make decisions based on a reasonable interpretation of the law with the expectation that future changes to the law will not be applied looking backwards.

Retroactively changing the tax code and requiring taxpayers to pay taxes on assets they acquired years or decades ago undermines these principles by changing the rules after the fact.

This also undermines confidence in the tax system and discourage taxpayers from taking advantage of explicit tax incentives (e.g., for charitable contributions, business investments, and energy efficiency) if they fear Congress might retroactively eliminate these incentives in the future.

In an op-ed published in The Hill last week, ATR Federal Affairs Manager Bryan Bashur wrote about a rulemaking issued by the Consumer Financial Protection Bureau (CFPB), which would significantly increase data collection and reporting requirements for financial institutions.

Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act required the CFPB to issue a rulemaking that would compel financial institutions to collect personal data from small businesses that submit loan applications and report it to the federal government.

If finalized in its current form, the CFPB’s rule would mandate the collection of a laundry list of personal information from small businesses. As Bashur highlights:

The CFPB wants to make business decisions for banks, credit unions and financial technology companies. Section 1071 directs financial institutions to collect data on small businesses that apply for a loan. Specifically, the financial institutions must disclose data to the CFPB, such as the sex, race and ethnicity of the loan applicant, the amount of the credit transaction, the gross annual revenue of the business and the census tract in which the business is located.

Ostensibly, this information would be used to target lending discrimination toward minority-owned and women-owned small businesses. While this is an admirable goal, the proposal falls short. As Bashur points out:

The CFPB will likely use the data it collects as a precursor to issuing future regulations that will force financial institutions to only lend to certain small businesses without considering risk factors. If financial institutions are unable to take risks into account when deciding whether to extend credit, they will likely decide to withhold all credit.

The CFPB’s rule will not enable increased credit access to minority-owned and women-owned small businesses. Instead, capital will dry up and no credit will make its way to traditionally under-capitalized businesses. In 2017, the Treasury Department published a report on financial regulation in the United States and recommended repealing section 1071 outright.

The rule will exacerbate the issue that it is trying to solve.

The federal government should promote deregulation to help unleash capital for small businesses. Unfortunately, this CFPB proposal will only increase government intervention into private business activities between lenders and borrowers. As Bashur explains:

Ensuring all small businesses have access to capital is vital for the sustainment of a strong American economy. However, it is wrong to assume that the federal government will know what financing decisions should be made between a private lender and a private borrower. The CFPB should let financial institutions do their job and continue to make risk-based financing decisions. This both allows capital to flow to businesses with successful businesses models and ensures that credit can continue to flow.

COVID-19 has been detrimental for small businesses. The last thing small businesses need is for the CFPB to intervene in private contracts that are distortive and may end up promoting discrimination instead of ending it.

Click here to read the full op-ed.

Last week, Senator Tim Scott (R-S.C.), with Senate Finance Committee Ranking Member Mike Crapo (R-Idaho) and Senate Banking Committee Ranking Member Pat Toomey (R-Penn.), introduced the “Prohibiting IRS Financial Surveillance Act,” which would bar the IRS from implementing Democrats’ proposed reporting regime on the bank, loan, and investment accounts used by virtually every American. There is also a House companion bill introduced by Rep. Drew Ferguson (R-Ga.).  

Democrats’ reporting regime would force financial institutions to collect any personal or business account in which the total withdrawals and deposits exceed at least $10,000 throughout the year. The Joint Committee on Taxation (JCT) estimates that taxpayers in every single income bracket would be impacted by this reporting requirement. This is a radical violation of privacy, will subject virtually every American to IRS abuse, and is not consistent with Democrats’ goals of making the “rich pay their fair share.” 

Sen. Scott’s bill explicitly prohibits the disclosure of any account’s outflows and inflows: 

“The Secretary of the Treasury (including any delegate of the Secretary) may not require any financial institution to report – 

(1) the inflows or outflows of any account maintained by such institution, or  

(2) any balances, transactions, transfers, or similar information with respect to any such account…” 

The proposed reporting regime is a radical violation of privacy. This policy would give the federal government access to virtually every American’s account inflows and outflows. The proposal is not tailored nor targeted at all towards higher-income taxpayers or more “suspicious” behavior. Steven Rosenthal with the left-leaning Tax Policy Center explained that this reporting regime proposal would "bury the agency in a sea of unproductive information.” In fact, if a family's monthly expenses total just $833 a month, or about $200 a week, their bank information would be reported to the IRS.

Additionally, the IRS already abuses current reporting laws. The IRS Criminal Investigation Division (IRS-CI) regularly violated taxpayers’ rights and skirted or ignored due process requirements when investigating taxpayers for allegedly violating the existing $10,000 currency transaction reporting requirements, according to a 2017 report by the Treasury Inspector General for Tax Administration (TIGTA).  

The report found numerous abuses – IRS agents often failed to properly identify themselves, seized financial assets before ever having talked or consulted with investigated taxpayers, didn’t attempt to verify reasonable explanations investigated taxpayers offered, and did not inform taxpayers of important information nor the purpose of interviews. The outcome of these cases was often determined by how willing a taxpayer was to engage in litigation against the government, rather than how severe the alleged offense was, a clear violation of the Eighth Amendment. To make matters worse, the vast majority of taxpayers targeted were innocent. 

Finally, one must wonder: “Why would Democrats be pushing for this policy if their stated goal is to make millionaires and billionaires pay their fair share?” Evidently, even Democrats know that the IRS will need tools to use against the middle class in order to raise the amount of money they claim the IRS will raise through increased funding. 

Cosponsors of the "Prohibiting IRS Financial Surveillance Act" include Senators Mitch McConnell (R-Ky.), John Thune (R-S.D.), John Barrasso (R-Wyo.), Joni Ernst (R-Iowa), Roy Blunt (R-Mo.), John Cornyn (R-Texas), Roger Marshall (R-Kan.), Thom Tillis (R-N.C.), Cynthia Lummis (R-Wyo.), Steve Daines (R-Mont.), John Kennedy (R-La.), Jerry Moran (R-Kan.), Kevin Cramer (R-N.D.), Richard Shelby (R-Ala.), Mike Rounds (R-S.D.), Chuck Grassley (R-Iowa), Richard Burr (R-N.C.), Todd Young (R-Ind.), John Hoeven (R-N.D.), Cindy Hyde-Smith (R-Miss.), Roger Wicker (R-Miss.), Marsha Blackburn (R-Tenn.), Jim Risch (R-Idaho), Mike Braun (R-Ind.), Shelley Moore Capito (R-W.Va.), Ben Sasse (R-Neb.), Tom Cotton (R-Ark.), Mitt Romney (R-Utah), James Lankford (R-Okla.), Jim Inhofe (R-Okla.), Dan Sullivan (R-Alaska), Josh Hawley (R-Mo.), Marco Rubio (R-Fla.), Rick Scott (R-Fla.), Ted Cruz (R-Texas), Bill Hagerty (R-Tenn.), Tommy Tuberville (R-Ala.), Lindsey Graham (R-S.C.), Ron Johnson (R-Wis.), Rand Paul (R-Ky.), John Boozman (R-Ark.), Mike Lee (R-Utah), Susan Collins (R-Maine), Deb Fischer (R-Neb.), and Rob Portman (R-Ohio).

The IRS has a long record of targeting and harassing taxpayers. This proposed new financial reporting regime is a violation of privacy, would provide another way for the agency to target taxpayers, and would disproportionately harm low- and middle-income Americans. To protect taxpayers, all lawmakers should support the “Prohibiting IRS Financial Surveillance Act.”