There is no billionaire wealth tax in the United States because federal law does not tax what a person owns. It taxes money as it moves: wages when earned, gains when property is sold, transfers when someone dies. A stock portfolio that climbs from $1 billion to $6 billion in a year produces no federal tax bill on that $5 billion increase, because no transaction has occurred. That structural choice, reinforced by a century of Supreme Court doctrine and a constitutional clause most Americans have never heard of, is why the ultra-wealthy can hold vast fortunes and report modest taxable income year after year.
The Federal System Taxes Income, Not Ownership
Federal taxes are built around inflows. Wages, salaries, dividends, interest, business profits, and gains from selling property are taxed at graduated rates running from 10% on the first slice of taxable income up to 37% on amounts above roughly $626,000 for a single filer. 1Internal Revenue Service. Federal Income Tax Rates and Brackets Those rates apply to money you actually received during the year.
Nothing in the Internal Revenue Code treats an increase in the value of an asset you already own as income. The asset would have to be sold, or exchanged for other property, before the IRS considers a gain to exist. That single distinction, between what you own and what you receive, opens the gap between a wealthy person’s net worth and their taxable income.
Why Unsold Gains Aren’t Taxed
The legal mechanism is called the realization requirement. Gain from property is computed as the difference between what you received from the sale and your original cost basis. 2Office of the Law Revision Counsel. 26 USC 1001 – Determination of Amount of and Recognition of Gain or Loss No sale, no gain. A shareholder who bought at $10 and watched the price climb to $1,000 owes zero as long as the shares stay put.
The Supreme Court cemented this idea in Eisner v. Macomber (1920), defining income as gain “derived from capital, from labor, or from both combined” and holding that mere growth in the value of an investment is not income; the profit must be “severed from” the capital before it becomes taxable. 3Justia Law. Eisner v Macomber, 252 US 189 (1920) A paycheck qualifies. A stock sale qualifies. An asset appreciating quietly in a brokerage account does not.
The practical result: someone holding $100 billion in equity can report almost no taxable income, simply by not selling.
Buy, Borrow, Die
If billionaires never sell their stock, how do they fund their lives? They borrow. Banks readily extend loans secured by publicly traded shares, often at interest rates far below the tax rate a sale would trigger. Borrowed money is a liability, not income, so no tax is owed on it.
Tax professionals sometimes call the cycle “buy, borrow, die.” You buy and hold appreciating assets, borrow against them to cover expenses and new investments, and never sell. The underlying assets keep growing, borrowing capacity expands with them, and reported taxable income stays low. The strategy works only because of the realization requirement. If unrealized appreciation were taxed each year, there would be no advantage to borrowing rather than selling.
The Step-Up in Basis at Death
What turns this from tax deferral into tax elimination is what happens when the owner dies. Under 26 USC 1014, the tax basis of inherited assets resets to fair market value on the date of death. 4Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent Stock bought for $1 million decades ago and worth $10 billion at death passes to the heir with a new basis of $10 billion. Every dollar of appreciation the original owner accumulated during their lifetime is erased from the tax ledger. The heir could sell the next day and owe capital gains tax on nothing.
The outstanding loans get repaid from the estate. The heirs inherit assets with a clean slate. The IRS never collected capital gains tax on that appreciation, and now it never will. The step-up applies broadly to stocks, real estate, business interests, and most other capital assets passed through inheritance.
The Constitutional Barrier
A direct annual tax on net worth is not just a political question. Article I, Section 9 of the Constitution requires that any “direct tax” be apportioned among the states based on population. 5Constitution Annotated. ArtI.S9.C4.1 Overview of Direct Taxes Under that rule, Congress would set a total revenue target and divide it among the states in proportion to headcount. A state with 10% of the national population would owe 10% of the tax regardless of how much wealth its residents actually held. Residents of less wealthy states would face higher per-capita levies to meet their state’s quota. No one seriously proposes implementing a wealth tax that way.
The 16th Amendment, ratified in 1913, created an exception for “taxes on incomes, from whatever source derived,” freeing income taxes from the apportionment requirement. 6Congress.gov. US Constitution – Sixteenth Amendment So the central question for any wealth tax, or any tax on unrealized gains, is whether it counts as a tax on “income” under the 16th Amendment. If yes, no apportionment needed. If no, apportionment is required, which means the tax is effectively impossible.
What Moore v. United States Did and Didn’t Decide
The most recent opportunity to settle this came in Moore v. United States, decided in June 2024. The case involved a one-time tax on the undistributed earnings of certain foreign corporations, attributed to their U.S. shareholders. The Moores argued that taxing income they never personally received violated the 16th Amendment because there was no realization event. The government argued that realization is not constitutionally required at all. 7Supreme Court of the United States. Moore v United States, No. 22-800 (2024)
The Court upheld the tax but sidestepped the bigger question. Because the corporate entity had realized the income even though the shareholders had not received it, the majority decided the case without resolving “whether realization is a constitutional requirement.” Opponents of a wealth tax pointed out that the Court did not endorse taxing unrealized gains; supporters noted that it did not rule it out. The constitutional status of a direct federal tax on wealth remains unsettled.
Proposals That Haven’t Passed
Several bills have attempted to create an annual tax on net worth. The most prominent is the Ultra-Millionaire Tax Act, most recently introduced in 2024, which would impose a 2% annual tax on household net worth between $50 million and $1 billion, with a higher rate above $1 billion. 8Congress.gov. HR 7749 – 118th Congress (2023-2024) – Ultra-Millionaire Tax Act of 2024 The bill was referred to the House Ways and Means Committee and went no further. Earlier versions met the same fate.
Other proposals target unrealized gains rather than net worth directly. The Biden administration’s “Billionaire Minimum Income Tax” would have imposed a minimum 25% rate on total income, including unrealized gains, for households worth more than $100 million. It was never enacted. Every version of these proposals runs into the same set of objections: the constitutional uncertainty, the practical difficulty of annually valuing illiquid assets like private businesses, and the risk of forcing asset sales during downturns to cover tax bills on paper gains that may later evaporate.
What the Federal Government Does Tax at the Top
Two existing taxes reach some wealth that escapes the income tax, and it helps to know their limits so you don’t assume they close the gap.
The federal estate tax applies to transfers at death rather than to ownership during life, and courts have consistently treated it as a transfer tax rather than a direct tax. 9Office of the Law Revision Counsel. 26 USC Ch. 11 – Estate Tax For 2026, each individual has a lifetime exemption of $15 million, so married couples can effectively shield $30 million; the top rate on amounts above the exemption is 40%. 10Internal Revenue Service. What’s New – Estate and Gift Tax The One Big Beautiful Bill Act, signed in July 2025, set that $15 million figure with permanent inflation indexing and no sunset. Sophisticated estate planning, including trusts, charitable giving, and annual gifts of up to $19,000 per recipient without touching the lifetime exemption, can substantially reduce what an estate ultimately pays.
The expatriation tax reaches wealthy individuals who renounce U.S. citizenship. A “covered expatriate,” defined as someone with net worth of $2 million or more or an average annual federal income tax liability above a statutory threshold (set at $124,000 and adjusted for inflation), is treated as having sold all worldwide assets at fair market value on the day before expatriation, with the deemed gain taxed even though nothing was actually sold. 11Office of the Law Revision Counsel. 26 US Code 877 – Expatriation to Avoid Tax It exists because without it, someone could extend “buy, borrow, die” one step further by leaving the country before dying and escaping the estate tax entirely.
Neither tax fills the space a wealth tax would occupy. The estate tax hits only the very largest estates, and only once, at death. The expatriation tax is a narrow gate. In between sits a class of assets that grows, funds a lifestyle through borrowing, and passes to heirs with the appreciation permanently erased. Whether Congress can build a tax that reaches into that space, and whether the Supreme Court would let it stand, remains the question the Moore Court declined to answer.