The Wealth Tax Proposals

How not to make friends among the tax establishment and the superrich.

BY JOHN MILLER | July/August 2019

This article is from Dollars & Sense: Real World Economics, available at

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The wealth-tax idea doesn’t stand up to scrutiny. Never mind that it’s likely unconstitutional. Or that a wealth tax is triple taxation. The most preposterous part of the wealth-tax plans is their supporters’ insistence that they would be good for the economy.

A wealth tax would suck money away from productive investments. Liberals in favor of taxation always trot out the tired trope that the poor drive growth by spending their money while the rich hoard it. ... So just tax the rich and government spending will create great jobs for the poor and middle class.

This couldn’t be more wrong. ... People don’t stuff their mattresses with Benjamins. They invest them.

—Andy Kessler, “What’s a Wealth Tax Worth?,” Wall Street Journal, Oct. 13, 2019

There’s one lesson from the Continent that he [Bernie Sanders] and Elizabeth Warren want to ignore. Europe has tried and mostly rejected the wealth taxes.

The best argument against a wealth tax is moral. It is a confiscatory tax on the assets from work, thrift and investment that have already been taxed at least once as individual or corporate income, and perhaps again as a capital gain or death tax. The European experience shows that it also fails in practice.

—“Where Wealth Taxes Failed,” Wall Street Journal, Nov. 5, 2019

There is a specter haunting Wall Street: a wealth tax. The howls of “triple taxation,” “unconstitutional,” and “immoral”—along with groans that a wealth tax was “a failure in Europe” and that a wealth tax could be good for the economy is “preposterous”—from hedge fund manager-owner Andy Kessler and the Wall Street Journal editors make that clear.

Kessler and the editors, however, are not the only ones rattled by the wealth tax proposals coming from the presidential campaigns of Senators Bernie Sanders and Elizabeth Warren. Other critics, who acknowledge that today’s alarming inequality needs to be corrected, argue that a wealth tax would compromise economic growth, never collect the revenues that advocates claim, and be impossible to administer, as its repeal across much of Europe is supposed to confirm. For some of these critics, it is more feasible to fix the estate tax and income tax than to introduce a new tax on wealth. But none of their arguments, rabid and less rabid, provide any good reasons to oppose a wealth tax that would spread more broadly the benefits of today’s winner-take-all economy.

Why We Need a Wealth Tax

The need for a wealth tax has perhaps never been greater. Today’s ever-worsening inequality has reached levels not seen in the U.S. economy in nearly 100 years. Economists Emmanuel Saez and Gabriel Zucman report that since the mid-1990s the share of national income going to the richest 1% of families has exceeded the share going to the entire bottom 50% of the population. By 2015, the income share going to the top 1% (all with income above $480,000 in 2018) was greater than 20%, levels not seen since the late 1920s.

If income inequality is bad, wealth inequality is grotesque. Wealth is 10 times more concentrated at the top than income. For instance, in 2013, the top one tenth of one percent (0.1%) of wealthiest families, all with assets in excess of $20 million, held 20% of U.S. wealth. That, too, is the highest level since the late 1920s, as well as more than the share of wealth held by the bottom 80% of the population. At the tippy top, the wealth share of the Forbes list of the 400 wealthiest Americans more than tripled from 1.0% in 1982 to 3.5% in 2018. Finally, as the Institute of Policy Studies reports, in 2016 the combined wealth of the three richest individuals on the Forbes 400 list, Bill Gates of Microsoft, Jeff Bezos of Amazon, and Warren Buffet of Berkshire Hathaway, was greater than that of the bottom half of the population, over 100 million adults.

At the same time that their share of income and wealth grew by leaps and bounds, the wealthiest 400 paid an increasingly smaller share of their income in taxes, as Saez and Zucman document in their recent book, The Triumph of Injustice. In 1980, the average effective tax rate (the share of income paid in federal, state, and local taxes) of the wealthiest 400 was 47.2%, almost double the 25.7% average effective tax rate paid by the 50% of adults with the lowest incomes. By 2018, the average effective tax rate of the wealthiest 400 had fallen to 23%, driven by a dramatic decline in taxes on corporate profits and the gutting of the estate tax. At the same time, the poorer half of the population paid out 24.3% of their income in taxes. Saez and Zucman report that, “for the first time in the last hundred years, the top 400 richest Americans have paid lower tax rates than the working class.” For the Sanders and Warren campaigns, this “triumph of injustice” makes an emphatic case for the need for a wealth tax targeted at the superrich.

The Sanders tax on “extreme wealth” would levy an annual tax on the wealth of the richest 0.1% of U.S. households. His wealth tax would only apply to households with a net worth over $32 million and would begin at a 1% rate. For instance, a married couple holding $32.5 million would pay a wealth tax of $5,000 on the $500,000 of their wealth that is above $32 million. The rate would then increase to 2% on net worth between $50 million and $250 million, and eventually reach an 8% rate on wealth over $10 billion. The Sanders campaign estimates that its wealth tax would raise $4.35 trillion in revenues over the next 10 years that would be used to fund Sanders’s affordable housing plan, universal childcare, and to help fund Medicare for All.

Elizabeth Warren’s “ultra-millionaire tax” is quite similar to the Sanders proposal. The Warren plan would tax the approximately 75,000 households with more than $50 million of net worth. Those households would pay an annual 2% tax on every dollar of net worth above $50 million and a 3% tax on every dollar of net worth above $1 billion. In November, Warren bumped the top rate up to 6% on wealth over $1 billion to help fund her Medicare for All plan. The Warren campaign estimates that altogether her wealth tax would raise about $3.75 trillion over the next 10 years that would be dedicated to improving public schools, funding universal childcare and free college tuition, forgiving student debt, and now helping to fund Medicare for All.

Saez and Zucman, who have consulted for the Sanders and Warren campaigns, estimate that the Sanders wealth tax would triple the effective tax rate of the wealthiest 400 from 23.5% to about 74%, while the original Warren wealth tax would double their effective tax rate to 46% (or about 60% with a 6% tax rate on wealth over $1 billion).

The Wild and Crazy

Earlier this year, economist and New York Times columnist Paul Krugman posted the following warning from a tax expert on his Twitter account: “the usual suspects will try to make this [Warren’s wealth tax] seem like a wild and crazy idea. It’s actually very smart.” Boy, was that right. For Kessler and the Wall Street Journal editors, there seems to be no idea crazier than the wealth tax. But it’s just not so.

Take Kessler’s throwaway lines that a wealth tax is “likely unconstitutional” and amounts to “triple taxation.” Mind you, with today’s Supreme Court, Kessler might have a point that a wealth tax could be declared unconstitutional. But there is good reason to think otherwise. We already have several taxes that are designed to tax wealth in different ways: a tax on real estate wealth, the property tax; a tax on accumulated wealth levied at death, the estate tax; as well as a graduated income tax.

For Kessler, the usual double-taxation pejorative wasn’t strong enough. But triple taxation is still the battle-weary argument that has been trotted out to oppose every attempt to tax capital gains or dividends at the same rate as wage income or to enact a robust estate tax. And these arguments are just another form of doublespeak—or should we say triplespeak? For the editors, the argument against double taxation is about morality. Work, thrift, and investment should not be taxed more than once, even if it’s the superrich who would pay those taxes.

A wealth tax would indeed tax assets of the ultra rich for a second or even a third time. For instance, the government collects income taxes on dividends paid out of the profits of corporations already taxed by the corporate income tax, and a wealth tax would tax dividend income once again. But being taxed more than once on the same income is a fact of life for every taxpayer, not just the rich. Most workers, for instance, pay Social Security payroll taxes and income taxes on their wages, and then sales taxes when they spend what remains of their paycheck. When it comes to fairness, the issue is not how often we pay taxes, but how much we pay in taxes. And, as Saez and Zucman document, the wealthiest 400 now pay a smaller share of their income in taxes than the bottom 50% of the population. Beyond that, the claim that taxing assets accumulated from capital income would be “double” or “triple” taxation is an exaggeration. For instance, the Institute on Taxation and Economic Policy reports that at least 60 of the nation’s largest corporations (including Amazon, Chevron, Delta Airlines, Halliburton, IBM, and Netflix) paid no corporate income taxes in 2018, even though they realized a combined $79 billion in profits.

Also, much inherited wealth has never even been taxed once, much less twice or three times. Capital gains from the sale of inherited assets are taxed on a stepped-up basis that works something like this. Suppose that Jeff Bezos purchases a share of stock for $200, holds it as it appreciates to $1,000, and then passes that stock on to his daughter when he dies. His daughter then sells the stock one year later for $1,100. Under current law, she would pay income taxes only on the $100 capital gain since she inherited the stock. The $800 gain from its original purchase price to its value at her father's death would escape the income tax. Untaxed gains are no small portion of estates. Economists James Poterba and Scott Weisbenner estimate that these gains make up about 50% of estates worth more than $10 million.

Kessler’s more substantial argument that a wealth tax would harm productivity and compromise economic growth also doesn’t stand up to scrutiny. While he might consider it preposterous, the claim that a wealth tax would boost economic growth and create jobs by redirecting money from the superrich to government spending is quite credible. Here’s why. The rich might not be stuffing their mattresses with their Benjamins, but they sure aren’t investing them, at least not at the usual rate.

Nor is today’s sluggish rate of investment due to a lack of Benjamins. For instance, the 2017 Trump tax cut slashed corporate income tax rates from 35% to 21% and further reduced taxes on any profits corporations repatriated from abroad. And corporations paid $94 billion fewer taxes the following year. Economist Emanuel Koop and his fellow International Monetary Fund (IMF) researchers found that Fortune 500 companies were spending just 20% of their increased revenue (from the tax cut) on capital expenditures and research and development. Not surprisingly, the promised sustained increase in investment never materialized. Since the tax cut, real fixed nonresidential investment (business investment in plant and equipment corrected for inflation) has grown more slowly than it had from 2010 to 2016 during the Obama years, and is now on the decline. The IMF researchers attributed the investment that did occur to increased aggregate demand, especially spending by consumers and the federal government, and not the tax cut.

If all that money didn’t go to investment, then what happened to it? The preponderance of additional corporate profits and repatriated revenues from abroad went to buying back stocks. Stock buybacks in 2018 reached $1 trillion for the first time ever.

What’s truly preposterous is the idea that a wealth tax, which would increase public spending, would not be better for the economy than corporate tax cuts that drive up the price of stocks, which are owned overwhelmingly by the well-to-do. Government investment has a strong record of promoting economic growth. Even IMF researchers assign a large multiplier, or bang for the buck, to the effect that a dollar of public investment has on economic output. In the last 10 years, however, U.S. government investment relative to the size of the economy has been lower than in any decade since the 1950s. Using a wealth tax to fund government spending on education and healthcare as well as the nation’s infrastructure would improve productivity and reinvigorate economic growth. It would also increase the overall spending in the economy, which would do far more to boost private investment than slashing corporate taxes.

Less Wild and Crazy

The Wall Street Journal crowd viscerally hates the wealth tax. But even economists who recognize the need to address inequality have raised arguments against a wealth tax. What are their arguments?

An overreaction

Tax economist Laurence Koltikoff, for instance, calls the wealth tax an overreaction. He argues that Saez and Zucman overstate the extent of U.S. inequality because they base their analysis on market incomes. Had they used income after taxes and transfers instead, their estimates of U.S. income inequality would have been dramatically lower.

After transfers and taxes, U.S. income inequality is in fact about 20% less than inequality based on market income (as measured by the Gini Coefficients, the most common measure of overall inequality). But the increase in income inequality from 1979 to 2014 would hardly change: a 26% increase in the inequality of income after taxes and transfers rather than a 27% increase in the inequality of market income.

Wildly optimistic revenue projections

Critics insist that wealth tax advocates overstate the revenues it would raise and understate the extent to which the rich would be able to avoid (legally) or evade (illegally) paying an annual wealth tax. Economist Kenneth Rogoff calls their revenue estimates “wildly optimistic.” Economist Lawrence Summers and law professor Natasha Sarin argue in their newspaper commentaries that the revenue estimates by professional estimators, such as the Congressional Budget Office, are invariably lower than the revenue estimates made by the advocates of any tax. In addition, by the time a tax proposal makes its way into law it is typically weighed down by loopholes introduced by legislators that reduce the revenue it would raise.

Summers and Sarin’s arguments give one pause, but their alternative estimate that the wealth tax would raise just 40% of the revenues Saez and Zucman project comes with real problems. Most importantly, their estimates are based on the record of the estate tax taxing wealth at death. They find that “a great deal of the wealth that Saez and Zucman assume will be hit by their wealth tax is escaping the estate tax,” and would likely escape an annual wealth tax as well.

But revenue estimates based on the estate tax are no substitute for estimating the revenue potential of a wealth tax, based on its own history. Saez and Zucman provide just such an estimate derived from economic studies of avoidance and evasion of annual wealth taxes in three countries: Denmark, Colombia, and Switzerland. Those studies found that reported wealth fell by less than 1% in Denmark in response to a 1% wealth tax. Reported wealth declined by 2% to 3% in Columbia and by between 23% and 34% in Switzerland in response to a 1% wealth tax. Saez and Zucman average those results to calculate that each 1% of a wealth tax would likely result in reported wealth declining by 8%. A recent study conducted using the Penn Wharton Budget Model found a 13% decline in reported wealth for each 1% of a wealth tax. The Penn Wharton model estimate is based on eight national studies of avoidance and evasion of wealth taxes, including the three studies Saez and Zucman used. Nonetheless, the Saez and Zucman revenue estimates are far from as wildly optimistic as Sarin and Summers allege. To begin with, the Penn Wharton model revenue estimates are 28% less than the Warren campaign estimates, not 60% less as Sarin and Summers claim. Beyond that, the results in both the Penn Wharton and Warren campaign estimates rely on a study of the large decline in reported wealth in response to the Swiss wealth tax. That 40.5% decline for each 1% of the wealth tax was due in large part to two factors that are not present in the United States. First, prior to January 2018, Swiss banks were not obligated to share information with tax authorities, and the wealth tax depends on Swiss citizens self-reporting their bank holdings. Secondly, the tax rate varied among the 26 Swiss cantons (or states), allowing the wealthy to seek out lower rates.

An administrative nightmare

Administering an annual wealth tax would be quite challenging. The Internal Revenue Service (IRS) each year would need to assess the value of a wide variety of assets. The worth of some of those assets would be relatively easy to determine, especially publicly trade stocks and other securities. However, determining the worth of other assets would be far more difficult. Those include non-publicly traded businesses and even real estate, which would need better and more frequent estimates of its value than local government assessments for their property taxes. The IRS would also need to build on the structure used by the estate tax to assess the value of assets overseas. The fact that the Sanders and Warren proposals would only tax households with a net worth over $32 million and $50 million, respectively, does, however, reduce the administrative burden of their wealth taxes.

Still, administering either Sanders’s or Warren’s wealth tax plans would be a considerable undertaking that would require a significant increase in the budget of the IRS. The Institute on Taxation and Economic Policy believes the required budget increase would not exceed $5 billion, a small portion of the revenues a wealth tax would likely collect.

Failure in Europe

Twelve European countries had a wealth tax in 1990. Today the number is just three: Norway, Spain, and Switzerland. The fact that nine European countries turned their backs on the wealth tax convinces the Wall Street Journal editors that the obstacles to implementing a wealth tax are insurmountable. It is not fair, however, to saddle Sanders’s and Warren’s wealth tax proposals with the failures of the wealth tax in Europe. Both of their proposals differ from European wealth taxes in ways that would make their proposals more successful than wealth taxes in Europe.

To begin with, tax competition would have a less damaging effect on a U.S. wealth tax than it did on the wealth taxes in European countries, especially those in the Eurozone. As Saez and Zucman point out, a French citizen could move from Paris to Brussels, Belgium, to avoid paying the French wealth tax, and live just an hour-and-a-half train ride from their former home. On top of that, the Sanders and Warren wealth taxes would be levied on U.S. citizens no matter where they live. Finally, in both plans wealthy taxpayers who renounced their citizenship would have to pay a 40% exit tax on their net worth.

More importantly, European wealth taxes set a much lower threshold for where the tax began than the thresholds set by the exemptions in the Sanders and Warren proposals. The European wealth taxes only applied to households with a net worth over approximately $1 million. Further, the editors report that Spain’s wealth tax begins at $777,000, the Swiss wealth tax starts “in the low six figures” inside most of country’s 26 cantons (or states), and Norway’s wealth tax starts at just $170,000. Those thresholds are a far cry from the $32 million starting point for the Sanders 1% wealth tax and the $50 million starting point for the Warren 2% wealth tax. With those thresholds, the Sanders and Warren proposals affect far fewer taxpayers. That leaves a much smaller group to fight for the repeal of the wealth tax and for the kind of exemptions that reduced the ability of many European wealth taxes to collect revenues.

Ain’t got no cash

Finally, the critics’ most laughable complaint is that some of these superrich taxpayers would not have the liquid assets needed to pay their wealth tax. That wasn’t the Trump administration’s attitude toward the federal employees put out of work during the partial government shutdown in December 2018 through January 2019. Informed that furloughed workers were lining up at food banks, millionaire Commerce Secretary Wilbur Ross was baffled because, “there’s no real reason why they shouldn’t be able to get a loan against it [their salary when they return to work].” Compared to a furloughed federal employee, taxpayers with over $32 million in assets would undoubtedly have far greater access to the credit necessary to pay the $10,000 in wealth taxes that they would owe on their next million dollars of wealth. Finally, Zucman adds that if need be, a wealth tax could be restructured to let the supperich pay their tax obligations with illiquid assets such as stocks and bonds.

Start with a Wealth Tax

The panoply of criticisms above, no matter how questionable, are why many economists who favor more progressive taxes see revising the taxes in the current tax code as more viable than enacting a wealth tax. Sarin and Summers, for instance, favor a bundle of reforms that would broaden the base of the tax code, including rolling back the Trump tax cut, broadening the estate tax base, and eliminating the stepped-up basis for taxing inherited assets. If enacted, their base-broadening proposals would make the U.S. tax code fairer, increase the tax burden of the well-to-do, and raise substantial revenues.

The Sarin and Summers proposals, however, raise many of the same concerns that they voiced about a wealth tax. Doesn’t the stripping of the revenue potential of the wealth tax that they say is inevitable foreclose the possibility of instituting their reforms? At minimum, if their preferred reforms are viable, then the revenue potential of the wealth tax would be far greater than Sarin and Summers suggest.

Still, even a reformed income tax would not do as much to extract a fair share of taxes from ultra-millionaires and the superrich as a wealth tax. That’s because there are many forms of wealth that don’t show up as income that can be taxed by an income tax. Saez and Zucman like to use the example of Warren Buffet’s taxes to make this point. Forbes estimated that in 2015 Buffett held $60 billion of wealth, which suggested that his wealth was growing by about $3 billion per year. But almost all of those gains went untaxed because the income tax works on a realization basis. That is, it taxes capital gains only when an appreciated asset is sold. Buffett did report $10 million of realized capital gains from the sale of some shares in his own company, Berkshire Hathaway, on which he paid about $2 million in income taxes. Even with an income tax that taxed capital gains at the same rate that wage income is taxed (instead of being capped at 20%), and with a top income tax bracket of 70% on income over $10 million as proposed by Rep. Alexandria Ocasio-Cortez, Buffet’s income tax bill would have been no more than $7 million. On the other hand, the wealth tax would have been levied on his total wealth of $60 billion. Buffet’s wealth tax bill would have been about $4 billion under the Sanders plan and about $3.5 billion under the Warren plan.

The United States can well afford a wealth tax. Even after enacting a wealth tax, the United States would remain a low-tax country. In 2018, U.S government revenues were equal to 24.3% of GDP, 10 percentage points lower than the 34.3% average of the 36 high-income countries that make up the Organization for Economic Cooperation and Development (OECD). The Sanders wealth tax would push up government tax revenues by 2.1% of GDP while the Warren wealth tax would add 1.7% of GDP. In either case, U.S. tax revenues (as a percentage of GDP) would still be lower than those in all but four OECD countries. And there would be still be room for base-broadening reforms like those favored by Sarin and Summers.

Perhaps even more importantly, the wealth tax is a better political vessel for tax reform than the complicated base-broadening measures and other technical fixes that would reform the taxes of our current tax system. The wealth tax is easily understood, precisely targeted at “ultra-millionaires” and “extreme wealth,” and is quite popular. A national survey conducted in November 2019 found that 63% of women and 63% of men favored Warren’s wealth tax, as did a majority of Democrats, Republicans, and Independents. Only Republican men with college degrees opposed it. No wonder the wealth tax has spooked Wall Street.

That’s a good reason to start with a wealth tax. It raises revenues from those “who more or less literally have more money than they know what to do with,” in Paul Krugman’s words, and uses those revenues to fund vital government programs that empower those who have been left behind by an economy that has benefited the superrich so handsomely.

is a professor of economics at Wheaton College and a member of the Dollars & Sense collective.

Emmanuel Saez and Gabriel Zucman, The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay (W.W. Norton, 2019); Emmanuel Saez and Gabriel Zucman, “Progressive Wealth Taxation,” Brookings Papers on Economic Activity, Sept. 2019; Gabriel Zucman and Emmanuel Saez, “Wealth taxes often failed in Europe. They wouldn’t here,” Washington Post, Oct. 25, 2019; Chuck Collins and Josh Hoxie, “Billionaire Bonanza: The Forbes 400 and the Rest of U.S.,”, Project of the Institute of Policy Studies, November 2017; Elizabeth Warren Campaign, “The Ultra-Millionaire Tax,” (; Bernie Sanders campaign, “Tax on Extreme Wealth,” (; Emmanuel Saez, “Taxation of Financial Capital: Is the Wealth Tax the Solution?,” PIIE Inequality Conference, Oct. 2019; “A Real Tax expert,” Paul Krugman, “60 Fortune 500 Companies Avoided All Federal Income Tax in 2018 Under New Tax Law,” Institute on Taxation and Economic Policy (ITEP), April 11 2019; Emmanuel Kopp et al., “U.S. Investment Since the Tax Cuts and Jobs Act of 2017,” IMF Working Paper, May 2019; James M. Poterba and Scott Weisbenner, “The Distributional Burden of Taxing Estates and Unrealized Capital Gains At the Time of Death,” NBER, July 2000; Abdul Abiad, Davide Furceri, and Petia Topalova, “The Macroeconomic Effects of Public Investment: Evidence from Advanced Economies,” IMF working paper, May 2015; Laurence Kotlikoff, “Tax Myths of Warrenonomics,” Wall Street Journal, Oct. 17, 2019; Kenneth Rogoff, “The Benefits of a Progressive Consumption Tax,” Project Syndicate, Sept. 3, 2019; Lawrence Summers and Natasha Sarin, “A ‘wealth tax’ presents a revenue estimation puzzle,” Washington Post, April 4, 2019; Penn Wharton Budget Model, “Senator Elizabeth Warren’s Wealth Tax: Projected Budgetary and Economic Effects,” University of Pennsylvania, Dec. 12, 2019; Marius Brilhart et al., “Taxing Wealth: Evidence from Switzerland,” NBER Working Paper 22376, June 2016; “The U.S. Needs A Federal Wealth Tax,” Institute on Taxation and Economic Policy (ITEP), Jan. 21, 2019; Ben Casselman and Jim Tankersley, “Elizabeth Warren’s wealth tax has wide support, except among one group,” New York Times, Nov. 29, 2019; Richard Rubin, “Tax Cuts Push U.S. Burden to Near World’s Lowest,” Wall Street Journal, Dec. 5, 2019; and Neil Irwin, “Elizabeth Warren Wants a Wealth Tax, How Would That Even Work?,” New York Times, Feb. 18, 2019.

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