In “Taxing Wealth,” Equitable Growth’s Director of Tax Policy and chief economist Greg Leiserson outlines the case for major reforms to the taxation of wealth in the United States, details four specific approaches to reform, and discusses the economic effects of these approaches and their relative advantages and disadvantages. “Taxing Wealth” is a chapter in Tackling the Tax Code: Efficient and Equitable Ways to Raise Revenue, published by the Hamilton Project and The Brookings Institution. The full chapter can be read on their website. The abstract is included below.
Equitable Growth previously published several resources for policymakers and the public about new ideas for taxing wealth and investment income, including an explainer on wealth taxes (also known as net worth taxes), a detailed report on wealth taxes, and an explainer on mark-to-market taxation.
The U.S. income tax does a poor job of taxing the income from wealth. This chapter details four approaches to reforming the taxation of wealth, each of which is calibrated to raise approximately $3 trillion over the next decade. Approach 1 is a 2 percent annual wealth tax above $25 million ($12.5 million for individual filers). Approach 2 is a 2 percent annual wealth tax with realization-based taxation of non-traded assets for taxpayers with more than $25 million ($12.5 million for individual filers). Approach 3 is accrual taxation of investment income at ordinary tax rates for taxpayers with more than $16.5 million in gross assets ($8.25 million for individual filers). And Approach 4 is accrual taxation at ordinary tax rates with realization-based taxation of non-traded assets for those with more than $16.5 million in gross assets ($8.25 million for individual filers). Under both the realization-based wealth tax and the realization-based accrual tax, the tax paid upon realization would be computed in a manner designed to eliminate the benefits of deferral. As a result, all four approaches would address the fundamental weakness of the existing income tax when it comes to taxing investment income: allowing taxpayers to defer paying tax on investment gains until assets are sold at no cost.