Wealthy people are increasingly interested in wealth tax

Americans are increasingly in favor of imposing wealth taxes on the super-rich. But despite the 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, which aims to reduce the deficit by about $ 360 billion.

Biden’s billionaire minimum income tax calls for a 20% tax on households worth more than 100 100 million, applying for “gross income” including so-called unrealistic capital gains or wealth increases.

However, as with previous property tax proposals, the plan could struggle to garner widespread support, including potential legal issues, if implemented, say policy experts.

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

Although the federal government previously relied on estate taxes for property taxes, many wealthy families bypassed these taxes through sophisticated estate planning strategies, he said.

“We have some remarkably wealthy American families,” Rosenthal said. “But we’re not collecting those assets because the estate tax is so pervasive.”

In addition, many wealthy families pay relatively low taxes on income because the tax code favors earnings from investments such as interest, dividends, capital gains or rent.

Currently, the top marginal income tax rate is 37%, with the highest earners paying 20% ​​for long-term capital gains, with a 3.8% Obamacare surcharge.

Sense. Elizabeth Warren, D-Mass. And Barney Sanders, I-VT. The federal wealth tax drew national attention to the 2020 presidential primary when the dualing proposals were unveiled.

Warren called for a 2% annual “ultra-millionaire tax” on Americans with a net worth of more than $ 50 million and a 6% social spending program on assets over $ 1 billion.

Sanders has tackled a more aggressive plan, with a tiered approach ranging from 1% for fortunes above $ 32 million to 8% of assets over $ 10 billion.

Later, Warren and Sanders, along with other Democrats, introduced the Ultra-Millionaire Tax Act in March 2021, a 3% annual tax on assets over $ 1 billion.

Warren said in a statement: “An asset tax is popular among voters on both sides for good reason: because they understand that the system has been rigged for the benefit of rich and large corporations.”

According to a 2020 Reuters / Ipsos poll, about 64% of Americans, including 77% Democrats and 53% Republicans, support a wealth tax on the super-rich. However, the plan failed to steam up in Congress.

Garrett Watson, a senior policy analyst at the Tax Foundation, said recently, there has been little change from the plan to tax direct assets, raising concerns about whether the proposals would be integrated into the judiciary.

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

The big problem, however, is the definition of “billionaire” and the calculation of net worth, legal experts say. The problem is that direct taxes must be divided among the states on the basis of population, which is not possible because in some places there are no billionaires.

Ron Wyden, chairman of the Senate Finance Committee, unveiled a tax plan for billionaires in October that would affect Americans with more than $ 1 billion in assets or a consistent income of more than $ 100 million for three consecutive years.

The plan calls for an annual tax on wealth growth, which Wyden insists was constitutional because imposing a tax on annual capital gains is already part of the tax code. But the proposal loses steam among Democrats.

Biden’s budget also calls for a tax on wealth gains at the time of death, which was dropped during discussions on previously proposed build-back better laws.

Currently, heirs may delay tax on inheritance increments until the property is sold. They also get a so-called step-up based on adjusting the purchase price of the asset with the date of death.

“Right now, these mega-billionaires who have amassed vast amounts of acclaimed wealth do not pay taxes in their lifetime and can avoid paying taxes at the time of death,” Rosenthal said.

The United States is not alone in fighting 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 – collected revenue from net assets from the top 12 countries in 1996, according to the Tax Foundation analysis.

In Europe, according to Watson, the ability to evade tariffs by moving from one country to another is one of the problems, as the tax base erodes over time, with various exclusions.

“From a revenue collection standpoint, there wasn’t much success,” he said.

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

Despite Biden’s billionaire outlook for a billionaire minimum income tax, experts believe that we will see wealth tax proposals revive.

John Gimigliano, head of the federal legal regulatory service at accounting firm KPMG, said the proposals were generally popular and probably not going away.

By and large, many Americans approve of higher taxes on the super-rich. Nearly two-thirds support a minimum 20% tax on income over $ 100 million, a March 2022 YouGov PLC survey found.

And according to CNBC’s 2021 survey of millionaires, about 60% of people valued at $ 1 million or more support property taxes on people worth $ 10 million or more.

“The reality is [levies on wealth] Representing such a departure from the tax rules, he said it would take time for policymakers to “grasp” it politically, including legislation and enforcement.

Yet, these ideas may come back in the meantime and beyond, if Biden ran for re-election in 2024, Gimigliano said.

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