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There is growing interest in wealth taxes on the super-rich

Sen. Ron Wyden, D-Ore., speaks during a Senate Finance Committee nomination hearing on Feb. 23, 2021.

Greg Nash | Swimming pool | Reuters

Americans are increasingly in favor of a wealth tax on the ultra-rich. But despite an increase in proposals, these policies have struggled to gain traction.

President Joe Biden unveiled the latest federal wealth tax proposal in March as part of his 2023 budget, aimed at reducing the deficit by about $360 billion.

Biden’s Billionaire Minimum Income Tax imposes a 20% levy on households worth more than $100 million, applying to ‘total income’, including so-called non-capital gains realized or asset growth.

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However, like previous wealth tax proposals, the plan could struggle to win broad support, with possible legal issues if passed, policy experts say.

Wealth tax proposals have emerged in response to growing inequality, according to Steve Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center.

Where the federal government previously relied on estate levies to tax wealth, many of the wealthiest households circumvent these taxes through sophisticated estate planning strategies, he said.

Mega-billionaires who have accumulated massive amounts of valued wealth do not pay taxes while alive and can avoid paying taxes when they die.

Steve Rosenthal

Senior Researcher at the Urban-Brookings Tax Policy Center

“We have fabulously wealthy American households,” Rosenthal said. “But we don’t collect on that wealth because the inheritance tax is so porous.”

Additionally, many of the wealthiest families pay relatively low income taxes since the tax code favors income from investments, such as interest, dividends, capital gains, or rent.

Currently, the top marginal tax rate is 37%, while top earners pay 20% for long-term capital gains, plus a 3.8% Obamacare surtax.

Wealth tax proposals

Federal wealth taxes captured national attention in the 2020 presidential primaries when the senses. Elizabeth Warren, D-Mass., and Bernie Sanders, I-Vt., posted dueling proposals.

Warren called for an ‘ultra-millionaire tax’ of 2% a year on Americans with a net worth over $50 million and 6% on wealth over $1 billion to help fund the programs social spending.

Sanders countered with a more aggressive plan, with a tiered approach starting at 1% for fortunes over $32 million up to 8% on net wealth over $10 billion.

Later, Warren and Sanders, along with other Democrats, launched the Ultra-Millionaires Tax Act in March 2021, a 3% annual tax on wealth exceeding $1 billion.

“A wealth tax is popular with voters on both sides for good reason: because they understand the system is rigged to benefit the wealthy and big business,” Warren said in a statement.

Some 64% of Americans favor a wealth tax on the super-rich, including 77% of Democrats and 53% of Republicans, according to a 2020 Reuters/Ipsos poll. However, the plan failed to take hold. magnitude in Congress.

Legal challenges

Recently, there has been a slight shift from direct wealth tax plans, with concerns over whether the proposals will “stand up to being mustered in a court system,” said Garrett Watson, senior policy analyst at the Tax Foundation.

If enacted, the courts could debate what counts as income, as outlined by the 16th Amendment, which codified a national income tax.

However, the biggest problem is the definition of “billionaire” and the calculation of net worth, according to legal experts. The problem is that direct taxes have to be split between states based on population, which isn’t possible because some places don’t have billionaires.

Senate Finance Committee Chairman Ron Wyden, D-Ore., unveiled a billionaire tax plan in October, affecting Americans with more than $1 billion in wealth or an adjusted gross income above $100 million for three consecutive years.

The plan called for annual asset growth levies, which Wyden said was constitutional because annual capital gains taxation is already part of the tax code. But the proposal fizzled out among Democrats.

Biden’s budget also calls for a tax on gains in assets on death, which was previously scrapped during negotiations on the proposed Build Back Better Act.

Currently, heirs can defer taxes on inherited growth until the property is sold. They also benefit from a so-called installment basis, adjusting the purchase price of the asset to the value on the date of death.

“Right now, these mega-billionaires who have accumulated massive amounts of valued wealth don’t pay taxes while they’re alive and can avoid paying taxes when they die,” Rosenthal said.

International wealth taxes

France is one of only five members of the Organization for Economic Co-operation and Development to collect tax revenue on net wealth. Pictured is the Eiffel Tower in Paris.

Travelpix Ltd | Stone | Getty Images

The United States is not alone in battling wealth taxes; politicians around the world have struggled to implement such taxes and keep them on the books.

In 2020, only five members of the Organization for Economic Co-operation and Development – Colombia, France, Norway, Spain and Switzerland – received income from net wealth, compared to a peak of 12 countries in 1996 , according to an analysis by the Tax Foundation.

In Europe, one of the problems has been the ability to circumvent levies when moving between countries, as well as various exclusions, eroding the tax base over time, according to Watson.

“From a revenue collection perspective, there hasn’t been a lot of success there,” he said.

Over time, several countries have repealed net worth taxes for a variety of reasons, including economic impact, the Tax Foundation found.

Future proposals

Despite the bleak outlook for Biden’s billionaire minimum income tax, experts believe we will continue to see wealth tax proposals resurface.

These proposals are generally popular and are unlikely to go away, said John Gimigliano, head of federal legislative regulatory services at accounting firm KPMG.

Generally speaking, many Americans support higher taxes for the ultra-rich. Nearly two-thirds favor a 20% minimum tax on income over $100 million, according to a March 2022 YouGov PLC survey.

And some 60% of individuals worth $1 million or more support a wealth tax on those with $10 million and more, according to CNBC’s 2021 Survey of Millionaires.

“Reality is [levies on wealth] represent such a deviation from the norms of taxation,” he said, explaining that it may take time for policymakers to “come to grips” with making it work politically, including enacting and the app.

Still, those ideas could come back midterm and beyond, including if Biden runs for re-election in 2024, Gimigliano said.

“This proposal would be something he will talk about during the election campaign,” he added. “I’m very confident of it.”


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