In Democrats’ latest effort to find a way to extract more revenue from America’s wealthiest, Sen. Ron Wyden of Oregon has proposed taxing them annually on assets they haven’t sold.

It’s a complex plan bound to hit legal roadblocks and create logistical headaches.

Fortunately, there’s a sounder idea for targeting the more than $5 trillion America’s billionaires have earned yet have paid relatively little in taxes on. It’s based on a plan that was part of President Joe Biden’s revenue proposals earlier this year: Instead of taxing the wealthiest each year, as Wyden would do, Biden’s original plan would tax them upon their death.

First, it’s helpful to understand why Democrats are looking to upend the traditional ways of raising revenue from these select few taxpayers, who number 700 or so.

Billionaires are able to pay low effective rates because the tax code only requires them to pay capital-gains taxes when an asset such as a business, stock or real estate is sold and the income is realized. For this cohort, those assets are where the bulk of their money is, and they often borrow against their holdings to fund their lifestyles.

Wyden would require those with at least $1 billion in assets, or who earn $100 million annually for three consecutive years, to first pay capital-gains tax on the current value of their liquid assets compared with what they were acquired for. Then going forward, they would pay taxes on any annual appreciation. Illiquid assets such as private businesses wouldn’t be taxed until they’re sold or at death but would face an additional fee.

Biden went a simpler route to get at the same pot of money. He would make death a taxable event, meaning dying would be the same as selling assets, thereby triggering capital-gains taxes.

The president had originally called for a much lower capital-gains threshold of $1 million per person, or $2 million per couple, before the tax-at-death took effect, but there’s no reason the benchmark couldn’t be adjusted to $1 billion and up.

Lawmakers are taking a big gamble if they move ahead with the Wyden billionaire tax because of the legal challenges it’s sure to face. That’s because it’s unclear whether the tax would be considered a direct tax or some form of an income tax.

The revenue from direct taxes has to be apportioned among states, according to Article 1 of the Constitution, but the 16th Amendment allows for an exception for taxes on income. If Wyden’s tax were deemed to be a direct tax, revenue raised would have to come from residents in each state.

As University of Chicago law professor Daniel Hemel points out, that’s impossible since there are no known billionaires in states like Alabama, Delaware or North Dakota. Wyden has said there are other areas of the tax code where this kind of real-time valuation of assets is used.

According to legal scholars, there’s no legitimate constitutional challenge to tax-at-death. The estate tax has long been established as constitutionally viable, and taxing unrealized gains at death is in that same vein, since it involves a transfer of property.

There are other benefits, too, to using Biden’s strategy. Lawmakers wouldn’t have to worry about things like how to account for losses in one year or the different treatment for liquid and illiquid assets. Those accommodations generally lead to loopholes and opportunities for exploitation.

This isn’t to say the tax-at-death wouldn’t also entail exemptions. In the original iteration, Biden said assets given to charities wouldn’t be subject to the tax, and trusts and partnerships would be subject to separate rules. All of that would have to be worked through (and there will always be tax-avoidance schemes), but it’s safe to say those modifications would be less complicated than they would be under Wyden’s proposal.

The main reason Democrats are unlikely to pursue Biden’s tax-at-death is that they want revenue now. Going Biden’s route could mean waiting longer for some of the big money to materialize.

On the other hand, later would be better than never. What if Congress passes Wyden’s plan only for it to be bogged down in court battles or, even worse, ultimately squashed by the Supreme Court? Then the revenue raised would be a big fat zero.

Alexis Leondis is a Bloomberg Opinion columnist covering personal finance.

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