The Biden administration is proposing a new wealth tax targeting Americans with a net worth of $100 million or more. Under the proposed plan, these high-net-worth individuals would be required to pay a 25% tax on their wealth.

Yahoo Finance's Rebecca Chen breaks down the details, discussing how wealthy individuals often avoid paying higher tax rates.

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

Editor's note: This article was written by Angel Smith

Video Transcript

RACHELLE AKUFFO: Well, tax the rich is the rallying cry of many in the 99% who see billionaires paying average tax rates well below what the rest of us make. Elon Musk, the richest man in the world, saw his net worth ballooned by almost $12 billion over the span of five years, starting at $8.4 billion and exploding to $20 billion by 2023. Now, while his wealth grew, his reported income was just $1.52 billion on which he paid $455 million in taxes, making his true tax rate only 3.79%

Meanwhile, the median American household paid about 15% in average taxes. Well, President Biden's solution to this-- the billionaire tax. Here's what he had to say about it at this year's State of the Union address.

JOE BIDEN: No billionaire should pay a lower federal tax rate than a teacher, a sanitation worker, or a nurse.

[APPLAUSE]

RACHELLE AKUFFO: While many have praised President Biden for his attempt at leveling the tax playing field, some experts have pointed to flaws in the proposal. Joining me now on this is our very own Rebecca Chen. So Rebecca, what do we-- what are people saying that they dislike about this tax-- this tax?

REBECCA CHEN: Yeah, so this has been a pretty popular proposal for President Biden. He has been mentioning it very consistently throughout his term. What is really-- he really is saying? Let's take a step back and talk about what he really is proposing in his proposal. He wants to put a 25% minimum tax on billionaires and really any Americans with assets over 100 million.

So let's call these the ultra-rich. And what he's really-- he really wants is to put a wealth tax on them and that has a lot of flaws in it, says a lot of the experts that we've spoken with. And the philosopher really, if you want to tax wealth, which is something that we don't do in this country right now, you really have to figure out how to do it and what happens when the valuation of that wealth drops.

For example, in your-- you mentioned that we talked about how Elon Musk, his personal wealth went ballooned to 20 billion in 2020. And let's say in the next year, his wealth or his share in Tesla sort of dropped, then does that mean we have to pay back any wealth that we tax him on? And I think that is one of the biggest question that many experts have right now regarding President Biden's proposal.