Prof. Elizabeth Warren and Holly Petraeus speak with servicemembers and their families at a forum in Ft. Myer.

Despite promises that it “costs nothing,” Democrats are planning to plug the holes in the budget their massive reconciliation bill is creating by creating a tax on billionaire wealth. They promise that the tax will affect fewer than 1,000 people. The tax on unrealized capital gains on liquid assets aimed at “billionaires,” will likely induce its wealthy victims to simply shift the types of assets they own. In all likelihood, much like the income tax, the wealthy will become so good at avoiding the tax, the threshold for paying it will be moved down to millionaires, and eventually to everyone else as well. Kristina Peterson and Richard Rubin report for The Wall Street Journal:

A new annual tax on billionaires’ unrealized capital gains is likely to be included to help pay for the vast social policy and climate package lawmakers hope to finalize this week, senior Democrats said Sunday.

“We probably will have a wealth tax,” House Speaker Nancy Pelosi (D., Calif.) said Sunday on CNN, noting that Senate Democrats were still working on their proposal, which isn’t technically a wealth tax but bears a strong resemblance to that idea.

The proposal under consideration from Senate Finance Committee Chairman Ron Wyden (D., Ore.) would impose an annual tax on unrealized capital gains on liquid assets held by billionaires, Treasury Secretary Janet Yellen said Sunday on CNN.

“I wouldn’t call that a wealth tax, but it would help get at capital gains, which are an extraordinarily large part of the incomes of the wealthiest individuals and right now escape taxation until they’re realized,” Ms. Yellen said.

Groups such as the National Taxpayers Union have objected to the tax on billionaires’ unrealized capital gains, saying it would add more bureaucracy to the tax system and impose new burdens on business investors.

The tax is expected to affect people with $1 billion in assets or $100 million in income for three consecutive years, according to a person familiar with the discussions. The idea, for which President Biden recently expressed support after excluding it from his campaign plans and administration agenda, would affect a narrower group of people than the capital-gains changes that have already flopped among congressional Democrats.

Democrats have been scrambling to find new ways to pay for the package’s roughly $2 trillion in spending after key centrist Sen. Kyrsten Sinema (D., Ariz.) signaled her opposition to increasing marginal tax rates on corporations, capital gains or individuals.

When compared with the tax-rate increases in the House bill, the emerging Wyden proposal would be significantly more progressive, in that it would raise its money from the very, very rich—likely fewer than 1,000 taxpayers—instead of the merely rich. But House Democrats have questioned whether it makes sense to add a relatively untested idea at this late stage.

A spokeswoman for Ms. Sinema said Friday that she was working with Sen. Elizabeth Warren (D., Mass.), who has pushed for an annual tax on the wealthiest Americans’ assets. That wealth tax that Ms. Warren talked about during her presidential campaign would have applied to all assets held by the wealthy. The proposal under consideration, in contrast, would focus on unrealized capital gains and it is expected to include a one-time tax on gains to date. That means a tech-company founder with $5 billion, almost all of which is unrealized gains, would be taxed more heavily than someone who just inherited $5 billion and has no unrealized gains under the tax code.

“I think it’s likely. I’m pushing hard,” Ms. Warren said Sunday on MSNBC of raising taxes on billionaires.

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