With Democrats nearing a deal on President Biden’s legislative package, they are rolling out a new plan to tax billionaires, and billionaire Elon Musk is none too pleased about it.

Musk suggested this would put us on a slippery slope to onerous taxation of everyday investors. “Eventually, they run out of other people’s money, and then they come for you,” he complained.

This captures something critical about this whole debate. Much discussion of the billionaires’ tax reduces it to a last-ditch stopgap effort to “pay for” Democrats’ investments, after Sen. Kyrsten Sinema (D-Ariz.) killed tax hikes on corporate and high income rates.

But the billionaires’ tax would also address glaring flaws in our tax code that deserve attention in their own right: They’ve driven soaring inequality and badly unbalanced our political economy. Fixing these would itself confer major benefits, irrespective of helping “pay for” Democratic investments.

Musk’s opposition helps illustrate this. Like many other rich people, his extreme wealth is partly the creation of government investment undertaken for the public good. But he’s also perfectly happy to protect that wealth from fair taxation in ways that deprive the government of revenue for other socially beneficial investments, just as many other billionaires are.

The billionaires’ tax

Under the new plan, those with $1 billion in assets or $100 billion in annual income for three straight years would get taxed on appreciation of value in tradeable assets such as stocks, even if they don’t realize those gains.

Democrats believe this would target 700 ultrarich taxpayers and raise hundreds of billions of dollars for investments in combating climate change, in child development and more. They would also be taxed at the outset on total appreciation of overall tradeable assets to the present.

The underlying idea is to address existing problems with the tax code, and the ways the wealthy exploit them, as a worthy goal in itself. Those problems result in the ultrarich paying far less in taxes, relative to income and overall wealth, than the great mass of working people do.

This is for two key reasons, as a White House report details. First, the very rich earn much income from returns on investments that are taxed at lower rates than ordinary income. Second, such investment gains can be shielded from taxation entirely by refraining from realizing them.

Because of the latter, many wealthy people borrow against those investments to reap a form of income without those investments and their appreciation ever facing taxation. They can even be passed on to wealthy heirs untaxed; a proposal to close that loophole has been nixed.

‘Taxes are optional’

“If a person is wealthy enough, taxes are optional,” Seth Hanlon, a senior fellow at the Center for American Progress, told me. “If they live off loans against their assets indefinitely, and never sell assets during their lifetimes, gains are never taxed at all.”

“They’ve enjoyed the ability to consume and have extravagant lifestyles, while paying no tax at all on the accumulation of that wealth,” Hanlon continued. The billionaires’ tax is designed to help fix this.

A ProPublica exposé found that due to such accounting trickery, the superrich paid a startlingly paltry income tax rate relative to overall holdings. One is Musk. Another is Jeff Bezos, who owns The Post and has battled Musk over federal space funding.

Musk typifies the deep dispute here in another way. He objects to fixing this problem on the grounds that opening the door to more taxation of billionaires will give the government license to blow money: When they “run out of” it, they will “come for you.” Taxation is a taking.

Musk also suggests “entrepreneurs” are better allocators of capital than “government.” But Musk himself has enjoyed billions of dollars in government subsidies and other help in building his businesses.

Tesla benefited from hundreds of millions in stimulus loans. Yes, Tesla repaid this, but the government nonetheless helped enable him to allocate capital. It is doing the same by granting SpaceX a multibillion-dollar moon contract.

Behold the mixed economy

Such investments both benefit the public and help build Musk’s enormous fortune. Behold the mixed economy: Public investment has created the foundation for innovation and prosperity throughout U.S. history, even as individual fortunes rise on that foundation.

Musk appears to harbor a strange dichotomy. On one side, there’s using taxpayer money to enable entrepreneurs to realize grand visions, a good form of socially beneficial government investment (which benefited him spectacularly).

On the other, there’s curbing billionaire tax avoidance to fund taxpayer spending on other public goods that don’t immediately fuel glorious entrepreneurial visions, multi-planetary or otherwise. This is apparently a bad and inefficient taking.

But that’s a wrongheaded frame. The Democratic agenda would tax the ultrawealthy to fund massive investments in child care, early education, health care and the transition to a decarbonized economy, and those investments will bring long-term social benefits for all of us.

Making Musk’s frame worse, the structure of the tax code that protects extreme wealth from taxation is itself a social product. The rich have benefited from government-restructured market rules that channeled income, wealth and rents upward for decades.

One is preferential treatment of wealth. As Ryan Cooper notes, the very distinction between income and wealth that shields the latter from taxation is not “natural,”; it’s the product of “government choices." We can choose to reverse them.

The insistence by billionaires that those choices are sacrosanct is at bottom an insistence that we must maintain their privileged status. That assumed privilege, and the superrich’s power to maintain it, are exactly what the billionaires’ tax would target. And that’s why we need it.